The impact of the quality of transport networks on economic competitiveness in the European Union

Teclean, Cezar Article The impact of the quality of transport networks on economic competitiveness in the European Union CES Working Papers Provided in Cooperation with: Centre for European Studies, Alexandru Ioan Cuza University Suggested Citation: Teclean, Cezar (2022) : The impact of the quality of transport networks on economic competitiveness in the European Union, CES Working Papers, ISSN 2067-7693, Alexandru Ioan Cuza University of Iasi, Centre for European Studies, Iasi, Vol. 14, Iss. 2, pp. 114-132 This Version is available at: https://hdl.handle.net/10419/286673 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ CES Working Papers – Volume XIV, Issue 2 114 This work is licensed under a Creative Commons Attribution License The impact of the quality of transport networks on economic competitiveness in the European Union * Cezar TECLEAN** Abstract This paper assesses the impact of transport infrastructure quality on economic competitiveness in the European Union (EU), context in which we argue that the quality of the different modal transport networks has a differentiated contribution on competitiveness. The purpose of our analysis aims to quantify the qualitative contribution of each modal transport network to economic competitiveness in the EU. The econometric quantification of the mentioned impact emphasizes a contributory hierarchy as follows: the quality of port and railroad infrastructure contributes most substantially to economic competitiveness, followed by the quality of the air transport infrastructure, the inland waterways and the road network. Based on the iterated results, we sequenced the EU member states with the lowest quality of networks with the highest impact on competitiveness. Thus, we identified the states for which the priority improvement of the quality of the port and railway infrastructures would significantly improve their economic competitiveness. Keywords: transport infrastructure, sustainable quality, economic competitiveness, spatial competitiveness, European Union Introduction The concern of European governments and institutions to ensure sustainable growth in the European Union (EU) has led to the permanent focus of Union forums on improving economic competitiveness and its determinants. One of the catalytic premises of competitiveness is the quality of transport infrastructures from its position of simultaneous adjuvant factor of several dimensions of development, complementary to competitiveness: spatial accessibility, interregional connection, development of endogenous territorial potential, increase of territorial cohesion. This plurivalence of the quality of transport networks in relation to development and competitiveness, has made European decision-makers in recent years focus not only on the territorial expansion of transport infrastructures, * This article is based on a paper presented at The 11th EURINT 2022 International Conference, held at the Centre for European Studies within the "Al. I. Cuza" University of Iasi, Romania, 20-21 May 2022. ** Cezar TECLEAN is associate researcher at International Economic Relations Research Center, Bucharest University of Economic Studies, Romania, e-mail: cezar10[email protected]. CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY The impact of the quality of transport networks on economic competitiveness in the EU 115 but also on their quality (Mullen and Marsden, 2015, p. 2). According to the European Commission’s Transport White Paper 2011, the European transport strategy aims to increase economic performance and improve competitiveness (Purwanto et al., 2017, p. 2882) based on increasing the quality and capacity of transport networks by 2050 under efficient use of available resources (European Commission, 2011, p. 9). Given the above imperatives, the contribution of transport infrastructure to increasing competitiveness is a very high stake in the EU (Annoni and Dijkstra, 2019, p. 20), which makes it essential to know to what extent the Union's competitiveness is sustainable based on the quality of transport networks. On the background of the quality gaps of the transport infrastructures within the EU, we support the hypothesis according to which the quality of the transport networks has a differentiated contribution by modes of transport on the economic competitiveness. Moreover, we show that the recent Brexit has also changed the contribution of different modes of transport to the competitiveness in the EU. The overall purpose of our research aims to quantify the contribution of the quality of each modal transport network on the economic competitiveness in the Union space. For the quantitative assessment we use a gravitational econometric model consisting of a set of multiple regression equations that successively quantify the impact of the quality of each modal transport network on economic competitiveness in the EU. Quantitative knowledge of the relationship between the quality of the various modal transport components and economic competitiveness is relevant for prioritizing decisions to improve modal networks with the most significant impact on economic competitiveness. Our study covers an unprocessed area in the literature, namely the comparative investigation of the behaviour of different modal transport networks in relation to economic competitiveness in the EU with and without Great Britain. On these coordinates, we design the concept of sustainable quality of transport networks to define the quality levels of these infrastructures from the perspective of their ability to sustainably sustain a certain level of economic competitiveness in the spaces they equip. Against this background, the original contribution and practical implications of our research are given by the identification of spaces equipped with insufficiently sustainable transport infrastructures in terms of quality in order to formulate intervention priorities to improve the quality of infrastructure components with maximum potential to improve economic competitiveness. Our paper is structured modularly, starting with an introductory section followed by a review of the essential elements of the literature. The next section contains the methodology of the empirical research, continued with the presentation and discussion of the results obtained and finally the presentation of the concluding remarks. CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Cezar TECLEAN 116 1. The quality of transport networks as a premise of economic competitiveness The implications of the quality of transport infrastructure in terms of economic competitiveness and further on the evolution of the entire European economy have led to an increase in scientific analysis of the relationship between the quantitative and qualitative development of transport networks and the dynamics of EU economic competitiveness. The different perspectives of the approach considerably extended the epistemological and conceptual area of the analysed field. Competitiveness is a concept specific to the integrated and globalized world influenced mainly by the four determinants of the Porter model ("Porter's Diamond": resource fund, business environment, related industries and domestic market demand) as the main factors (Porter, 1990), to which are added a number of other complementary factors, among which the quality of the transport networks remains the essential factor for generating accessibility and capitalizing on the regional potential (Chacon- Hurtado et al., 2020), making good cross-border connections, reducing trade costs (Kurmanalieva, 2020, pp. 5, 10) and attracting capital investment (Cervero, 2009, p. 212). On this background, Feldman et al. (2008) explain that economic benefits come at the end of a value chain on the basis of which the parameters generating competitiveness (including transport networks) encourage competition which in turn delivers economic results. In this regard, Button (2003) shows that the link between the availability of transport infrastructure across the EU and economic development is a positive correlation which, according to Stough et al. (2002) and von Hirschhausen (2002) are the engine of competitive development, including for the less developed areas of the EU. The idea of EU-wide competitiveness and the contribution of transport infrastructure quality to its realization is gaining a growing niche on the academic discourse agenda, given that the notion of competitiveness at national level still provokes heated debates from a conceptual and methodological point of view. Thus, Krugman (1994, pp. 28, 41; 1996, p. 17) disputes the thesis that a country's wellbeing depends on its competitiveness in international markets, but rather on the domestic productivity of labor and capital, which makes it more feasible to address the impact of the quality of transport networks on competitiveness rather at EU level as a whole. In this context, Greaves (2019, p. 35) and Mačiulis et al. (2009, p. 97) show that the quality of modal networks comes with the efficiency of green transport as a prerequisite for the sustainability of Community transport systems within the single European transport area. But the gradual fulfillment of these planned steps in stages by 2030 and 2050, respectively (European Commission, 2011, pp. 9, 17, 27), involves the allocation of significant financial resources to improve transportation systems (Laird and Venables, 2017, p. 2) as a condition for improving spatial competitiveness (Kiel et al., 2014, p. 78). In an analysis of the return CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY The impact of the quality of transport networks on economic competitiveness in the EU 117 on capital invested in transport infrastructure, Aschauer (1989, p. 197) argues that the most relevant infrastructure elements to sustain competitiveness are roads, ports and railways, a conclusion resulting from the application of the public capital analysis method of social rates of return and not the classic cost-benefit analysis. Without challenging the "core infrastructure" status that Aschauer assigns to the three modal infrastructures mentioned, we consider that by circumventing the costbenefit analysis method, the possibility of economic-spatial evaluations through the parameter of transport costs is emaciated, an indicator to which Krugman (1991) assigns a key role in determining the configuration of space economies through the epistemic lens of the new economic geography. The relationship between the quality of transport networks and competitiveness is one of the themes subsumed by the concept of sustainable development and from the perspective of the regional and local levels. Based on the cost-duration-quality analysis model, Wang et al. (2018, pp. 3, 18) show that the sustainability of transport is a key element of sustainable regional development through the multiple spillover effects in terms of space, economy and environment that transport networks induce at the regional level. However, Polyzos and Tsiotas (2020, p. 21) found that the major beneficial impact of transport infrastructure development at all levels (European, national, regional) can only be achieved through the simultaneous application of appropriate transport infrastructure policies. At the same time, the Cambridge Econometrics / Ecorys-NEI report (2005) for the European Commission highlights a number of issues that depend on the level of analysis and the mode of transport, showing that: Every region has its own specific needs in terms of both overall scale of transport networks and particular modes of transport. A minimum level of transport infrastructure is necessary for regional competitiveness, but this is not necessarily the same level in all regions (Cambridge Econometrics / Ecorys-NEI report, 2005, p. 24). On the other hand, Boschma (2004, p. 1001) compares the competitiveness of regions with that of firms, but states that "there are serious limits in enhancing the competitiveness of regions" compared to firms, because "it is difficult to copy or imitate a successful model from elsewhere, and new trajectories often emerge spontaneously and unexpectedly in space" (Boschma, 2004, p. 1002). Also, the airport infrastructures exert a specific influence on their regions, but within the limits given by the evolutions and morphologies of the metropolitan areas (Cidell, 2015, p. 1125). Local research in recent years has developed the concept of sustainable mobility which emphasizes the role of the link between spatial planning and transport quality to minimize urban CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Cezar TECLEAN 118 transport costs as a precondition for sustainable urban development (Banister, 2008, p. 73). However, depending on the regional level of development and local specificities, there are different situations within the EU (Nowak, 2022, p. 46). Thus, Dyr and Ziółkowska (2014, p. 18) show that in Poland there is a weaker link between transport infrastructure and regional competitiveness compared to the impact of energy and water supply infrastructure on regional competitiveness. In the United Kingdom (UK), on the other hand, the good development of transport networks has been manifested in terms of competitiveness through an increase in foreign trade and wages, but at the same time has led to an increase in land prices. (Eddington, 2006, p. 19). In terms of local transport, however, in the UK there has been a lag behind the quality of urban transport networks compared to the situation in European and North American cities, which generates negative effects on regional competitiveness (Docherty et al., 2009, p. 321). Against the background of interregional changes in competitiveness, Camagni (2002, p. 2395) defines the concept of territorial competitiveness as a phenomenon by which regions, unlike states, are in a single monetary area which makes them compete with each other based on the principle of absolute advantage and not on the principle of comparative advantage. Therefore, the author argues that on a regional scale the success of territorial competitiveness depends to a decisive extent on the quality of each modal transport infrastructure, which clearly surpasses the quality indices of governance (Shala and Qehaja, 2021) and legislative regulations (Rodrigue and Notteboom, 2020, p. 102). 2. Research methodology and data To investigate the relationship between economic competitiveness and its determinants, we use an econometric model that quantifies the impact of the five quality indicators of the modal transport infrastructures that are successively added to the set of five relevant factors for supporting competitiveness. Basically, we use a transversal gravitational model (by state, at the level of 2019) consisting of a set of multiple regressions that explain the economic competitiveness in the EU (as dependent variable) depending on the basic factors of competitiveness and quality indices of the five modal transport networks (as independent variables) (Table 1, Table 2 and Table 3). Table 1. The determining parameters of economic competitiveness DEPENDENT VARIABLE Economic Competitiveness: Competitiveness Index (World Economic Forum) INDEPENDENT VARIABLES BASIC DETERMINING FACTORS: Labour productivity (The World Bank) CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY The impact of the quality of transport networks on economic competitiveness in the EU 119 Total investments – Gross fixed capital formation (The World Bank) Research & Development expenditures (Eurostat) The act of governance quality: Government Effectiveness Index (The World Bank) The business environment quality: Economic Freedom Index (The Heritage Foundation) QUALITY INDICES OF TRANSPORTATION INFRASTRUCTURES: Road infrastructure quality index (The World Bank) Railroad infrastructure quality index (The World Bank) Port infrastructure quality index (The World Bank) Air transport infrastructure quality index (The World Bank) Inland waterways quality index (Authorʼs computations) Source: Authorʼs representation Table 2. Basic determining factors of economic competitiveness in the EU Countries Labour productivity (GDP/ Person employed/ Year) Investment – Gross fixed (billion $ ) R&D expenditures (% of GDP) Government Effectiveness Index (points) Economic Freedom Index (points) Belgium 127,390 129.33 3.16 1.14 67 Bulgaria 50,327 12.82 0.83 0.20 69 Czechia 84,220 68.36 1.93 0.95 74 Denmark 113,216 74.04 2.89 1.90 77 Germany 102,132 830.89 3.17 1.52 74 Estonia 76,696 7.90 1.63 1.17 77 Ireland 186,080 213.90 1.23 1.29 81 Greece 69,379 21.70 1.28 0.34 58 Spain 96,505 279.74 1.25 1.00 66 France 115,812 640.67 2.19 1.37 64 Croatia 71,958 13.39 1.08 0.49 61 Italy 103,928 361.82 1.46 0.48 62 Cyprus 62,694 4.85 0.71 0.99 68 Latvia 67,945 7.95 0.64 1.10 70 Lithuania 77,631 11.73 0.99 1.04 74 Luxembourg 156,142 12.33 1.18 1.73 76 Hungary 69,650 44.29 1.48 0.49 65 Malta 86,550 3.22 0.59 0.85 69 Netherlands 106,351 193.45 2.18 1.80 77 Austria 113,616 111.07 3.13 1.52 72 Poland 78,090 109.27 1.32 0.54 68 Portugal 75,124 43.45 1.40 1.16 65 Romania 66,786 56.49 0.48 -0.19 69 Slovenia 81,434 10.63 2.05 1.08 66 CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Cezar TECLEAN 120 Countries Labour productivity (GDP/ Person employed/ Year) Investment – Gross fixed (billion $ ) R&D expenditures (% of GDP) Government Effectiveness Index (points) Economic Freedom Index (points) Slovakia 71,598 22.72 0.83 0.58 65 Finland 103,901 63.95 2.80 2.00 75 Sweden 110,728 130.32 3.39 1.70 75 UK 99,947 510.07 1.71 1.48 79 EU-28 97,693 3,480.05 1.67 1.06 47.14 EU-27 94,926 2,969.98 1.67 1.04 45.96 Sources: The World Bank, Eurostat, The Heritage Foundation, 2019 Table 3. Economic competitiveness and quality indices of transport infrastructure in the EU Countries Competitive ness Index (points) Quality of Roads (points) Quality of Railroad (points) Quality of Port Infrastructure (points) Quality of Air Transport (points) Quality of Inland Waterways (points) Belgium 76.4 4.4 4.1 5.6 5.6 6.1 Bulgaria 64.9 3.4 3.1 4.3 4.5 3.4 Czechia 70.9 3.9 4.5 3.2 5.0 3.8 Denmark 81.2 5.6 4.5 5.8 5.8 3.5 Germany 81.8 5.3 4.9 5.2 5.5 6.3 Estonia 70.9 4.7 3.1 5.6 4.6 3.0 Ireland 75.1 4.4 4.0 5.0 5.5 3.9 Greece 62.6 4.6 3.0 4.8 5.4 2.1 Spain 75.3 5.7 5.4 5.4 5.6 4.7 France 78.8 5.4 5.0 5.2 5.5 5.8 Croatia 61.9 5.6 2.4 4.7 4.8 3.2 Italy 71.5 4.4 4.1 4.7 4.9 4.1 Cyprus 66.4 5.1 - 4.3 5.1 - Latvia 67.0 3.6 4.6 4.9 5.7 2.7 Lithuania 68.4 4.8 4.6 4.8 4.9 3.1 Luxembourg 77.0 5.5 5.0 4.4 5.6 3.9 Hungary 65.1 4.0 3.8 3.2 4.6 4.1 Malta 68.5 3.3 - 5.1 5.5 - Netherlands 82.4 6.4 5.7 6.4 6.4 6.3 Austria 76.6 6.0 5.3 3.7 5.2 4.2 Poland 68.9 4.3 3.9 4.5 4.8 4.9 Portugal 70.4 6.0 4.2 4.9 5.0 3.2 CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY The impact of the quality of transport networks on economic competitiveness in the EU 121 Countries Competitive ness Index (points) Quality of Roads (points) Quality of Railroad (points) Quality of Port Infrastructure (points) Quality of Air Transport (points) Quality of Inland Waterways (points) Romania 64.4 3.0 2.8 3.9 4.6 4.6 Slovenia 70.2 4.9 3.1 4.7 4.6 2.9 Slovakia 66.8 4.0 4.0 3.1 3.8 4.3 Finland 80.2 5.3 5.5 6.4 6.3 4.3 Sweden 81.2 5.3 4.0 5.3 5.7 4.5 UK 81.2 4.9 4.3 5.2 5.3 5.2 EU-28 72.4 4.8 4.2 4.8 5.2 4.15 EU-27 72.0 4.8 4.2 4.8 5.2 4.11 Sources: World Economic Forum, The World Bank, Author’s computations, 2019 In the absence of a quality indicator for inland waterways in the established databases, we have built a quality index of this infrastructure based on the value scale compatibility of the quality indices used for the other modes of transport (with values from 1 to 7), according to the following algorithm: • we started from the eight size classes of the inland waterways (according to ECMT / UNECE Classification, 1992) and for each class we considered the maximum possible value of 100% correlated with the maximum possible value of the quality index of 7. We divided the scale 0- 100% by 7, resulting in value ranges (rounded for practical reasons) of 0-15%, 15.1-30%, 30.1- 45%, 45.1-60%, 60.1 -75%, 75.1-90% and 90.1-100%; for each range of values we have given in ascending order a benchmark value from 1 to 7: 1 for the range 0-15%, 2 for 15.1-30%, ... , 7 for 90.1-100%; • for each state we observed the share held by each navigable category and gave it the value 1, 2, ... , 7 corresponding to the range of values in which it falls; if a state does not have navigable sections falling into one of the eight categories we have assigned the value 0 for that category; • the arithmetic mean of the string of the 7 values thus determined represents the value of the quality index of the inland waterway network of the State concerned. The choice of the categories of indicators and statistical data mentioned took into account the following selection criteria: the criterion of necessity and opportunity, the criterion of representativeness, the criterion of compatibility of data series and the criterion of data availability. The proposed research is feasible as it is based on a consistent background of data available in the official statistics mentioned. CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY Cezar TECLEAN 128 The second modal category with a relevant impact on competitiveness in the EU-27 is the category of air transport infrastructures. Among the states with the lowest quality of air infrastructures (below the first value quartile) are Bulgaria, Estonia, Hungary, Romania, Slovenia and Slovakia. For these states, improving air infrastructures (including their intermodal connection) would be the second feasible priority that would bring more competitiveness. If we consider the EU-28, the second priority would be to improve the railway infrastructure, a recommendation valid for Bulgaria, Estonia, Greece, Croatia, Romania and Slovenia. We note that in any variant (EU-28 or EU-27), Bulgaria Estonia, Romania and Slovenia are eligible for the rehabilitation of both their infrastructures (air and rail) bearing premises for improving economic competitiveness. At the same time, it is noted that in the post-Brexit era a number of countries such as Bulgaria, Hungary, Romania and Slovakia are on the list of both priority needs for improving competitiveness (rehabilitation of both their port and air infrastructure). Conclusions The results of our analysis show that in both the EU-28 and the EU-27, the quality of transport networks has a differentiated impact on modes of transport on economic competitiveness, and Brexit has moderately changed the share of the contribution of different modes of transport on EU-27 competitiveness. The UK's exit from the EU in 2020 decreased by 0.6% the contribution of the basic factors of competitiveness, at the same time with the decrease of the contribution of the transport networks. Brexit has led to a slight slowdown in European competitiveness across the EU-27, and road transport has been the only component of transport systems to increase its competitive contribution to the EU-27, given the peripheral nature of the British road network. Within the EU-28 all transport networks made a 12% contribution to improving economic competitiveness, but with Brexit the loss of British transport networks led to a decrease in competitiveness for the EU-27 as a whole by 1.6%. In the EU-27, the hierarchy of the competitive contribution of modal transport networks places port and air infrastructures at the top of the ranking, followed by road, inland waterways and railway infrastructures. Across the EU as a whole, there is a low impact on the competitiveness, especially in the post-Brexit era, of rail networks and inland waterways, i.e. exactly the transport systems on which there are high expectations given the trend of sustainable development and green EU approaches, which shows poor maintenance and underutilization of these infrastructures in relation to the opportunities they offer. CES Working Papers | 2022 - volume XIV(2) | wwww.ceswp.uaic.ro | ISSN: 2067 - 7693 | CC BY The impact of the quality of transport networks on economic competitiveness in the EU 129 Among the basic factors of competitiveness, the quality of the business environment registered the most relevant decline after Brexit. Economic freedom and the quality of legislation have had the most visible impact on the decline in competitiveness in the EU-27, reflecting the high degree of economic favourability offered by the Anglo-Saxon regulatory framework compared to the European one. On the other hand, in the segment of good governance, the discrepancy is in favor of the EU-27 after the departure of Great Britain amid the reluctance that the United Kingdom had permanently towards European decisions. The reporting of the spaces with the lowest quality of the most contributing transport networks to the creation of competitiveness illustrates the intervention priorities for increasing competitiveness and demonstrates the need to profile spatially differentiated policies for the development of different transport networks. Differentiated approaches would also be useful along the lines of budget allocations for different programs for different states. Thus, for Bulgaria, the Czech Republic, Cyprus, Hungary, Austria, Romania and Slovakia, the draining of the community's financial effort should aim at the rehabilitation of port capacities, which, for these spaces, would most quickly lead to the improvement of the competitive potential. 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