The Role of Transportation in the Economy

The Role of Transportation in the Economy

Findings From 1997 TSAs

As mentioned, the TSAs can be used for conducting studies related to the role of transportation in the economy. The following discusses findings from the 1997 TSAs as applied to analyses examining the contribution of transportation to GDP, the use of transportation services by industry, the direct cost of transportation services by commodity, and the total cost of transportation services by commodity.

Contribution of Transportation to GDP

The TSAs can be used to assess the size and impact of transportation on the U.S. economy. The TSAs show that all transportation services (all for-hire and in-house modes) contributed about $367.8 billion of value-added in 1997. Of this $367.8 billion, for-hire air, rail, truck, and water transportation generated $152.2 billion, or about 1.8 percent of all GDP. In-house transportation activities for these same four modes (air, rail, truck, and water transportation) generated $122.7 billion of value-added in 1997, or 1.5 percent of total GDP. In both for-hire and inhouse transportation, truck transportation services contributed the most to GDP: $81.4 billion and $116.7 billion respectively (see figure 1).

Use of Transportation Services by Industry

The TSAs additionally reveal which industries rely most on for-hire and in-house transportation and for each, what mode(s). Reliance can be represented both as an absolute dollar value and as a requirement per dollar of industry output. The latter estimates the importance of transportation relative to all other inputs in producing output and hence the intensity to which transportation is used in the production process. In many cases, the intensity of transportation use leads to a different conclusion about the importance of transportation than the one indicated by the absolute dollar value.

In 1997, the manufacturing industry was the largest user of all transportation services at $148.9 billion, while the construction industry was the largest user of in-house transportation services. In 1997, the construction industry used $93.4 billion of in-house transportation services (primarily in-house trucking) and used a smaller amount of for-hire transportation services ($13.7 billion) provided by the same modes included in the in-house transportation estimate (air, rail, truck, and water). The next largest user of in-house transportation was trade (wholesale and retail), which used $90.1 billion of the service and only $7.4 billion of for-hire transportation services for the same modes (air, rail, truck, and water). The smallest user of in-house transportation (excluding the group "other") was utilities. The utilities sector uses relatively less in-house transportation as it includes establishments engaged primarily in transmitting and distributing natural gas to final consumers and hence establishments using a large amount of for-hire pipe transportation (see figures 2 and 3).

In looking at the use of all in-house transportation as a share of an industry's total output (in I-O terminology, the direct requirements for in-house transportation), it further can be seen that the construction industry required the most in-house air, rail, truck, and water transportation (12.4) to produce a dollar of output. The next most intensive user of all in-house transportation services was natural resources and mining, which required 7.5 of in-house transportation to produce a dollar of output, even though the natural resources and mining industry was only the fourth largest user of all in-house transportation services in absolute terms. In-house air, rail, truck, and water transportation accounted for the smallest share of financial services' total output, making it the least intensive user of all in-house transportation (see table 8).

Among nontransportation industries, the utilities industry was the most intensive user of for-hire transportation. The utilities industry required 2.8 per dollar of output of for-hire air, rail, truck, and water transportation. This intense use reflects the fact that the utilities sector includes, per the NAICS, establishments engaged primarily in transmitting and distributing natural gas to final consumers. These establishments use a large amount of for-hire pipe transportation. The second most intensive user of for-hire transportation was manufacturing, which required 2.3 of for-hire air, rail, truck, and water transportation per dollar of output. The industries: trade, information services, financial services, professional and business services, education and health services, leisure services, and other services each required less than 1.0 of for-hire air, rail, truck, and water transportation per dollar of output, making them the least intensive users of for-hire transportation.

Direct Cost of Transportation Services by Commodity

The TSAs also enable the analysis of transportation service costs. This type of analysis differs from the examination of the use of transportation on an industry basis for two reasons. First, many industries produce more than one commodity, and second, many commodities are produced by more than one industry. Thus to analyze the importance of transportation costs in the purchasers' prices of commodities, both for-hire and in-house transportation costs were distributed on a commodity-by-commodity basis.21

Among nontransportation commodities in 1997, construction commodities required the most transportation to be produced (14.5 per dollar of commodity produced), followed by utilities (10.0 per dollar of commodity produced). For construction commodities, in-house transportation costs contributed to a larger share of the total transportation cost than the for-hire transportation cost. This follows from the intense use of in-house trucking in the construction industry, which is the only industry that produces construction commodities. Likewise, the intense use of for-hire trucking in producing utilities commodities caused the for-hire transportation cost to contribute more toward the total transportation cost of utilities commodities than in-house transportation (see figure 4).

Total Cost of Transportation Services

The TSAs additionally measure the total cost of transportation services. The total cost of transportation services is captured in the direct and indirect effect of transportation on the rest of the economy. The direct effect is the change in transportation output caused by a change in demand for another product; while the indirect effect is the change, induced by a change in the demand for transportation, in the output of another industry, or industries. These effects can be seen in the TSAs total requirements table.

In the total requirements tables, the coefficients listed under each commodity can be used to determine the direct relationship between production of the commodity and the demand for transportation services, because they show the amount of transportation output needed to meet a dollar increase in the final demand for the commodity. For instance, a $1 increase in the final demand for construction sector commodities requires an increase of 20.2 in total transportation services output. Of this 20.2 increase, 14.8 of in-house; 3.9 of for-hire air, rail, truck, and water; and 1.5 of other for-hire transportation services would be required. The least amount of transportation services (excluding the "other" category) is needed to meet a $1 in financial services, for which only 2.7 is required. (see Figure 5)

The TSAs total requirements table also shows the indirect effect of changes in demand for for-hire and in-house transportation. These changes can be measured by the total industry output multiplier. Across all for-hire and in-house transportation modes, the output multiplier was smallest for in-house rail transportation at 1.82 and, except for for-hire rail, above 1.90 for all transportation modes (excluding the for-hire "other" group). Overall, the economy's response to changes in the demand for all for-hire and in-house transportation modes was larger than that for trade and utilities but smaller than that for natural resources and mining and manufacturing. This means that an investment in either for-hire or in-house transportation will have a greater economic impact than an equally sized investment in trade or utilities but a smaller impact than one in natural resources and mining or manufacturing (see table 12).

21 Costs of transportation services are distributed to commodities using the TSAs make and direct requirements tables. For commodities in the TSAs make table produced only by a single industry, the cost of all for-hire and in-house transportation services equals the sum of the for-hire and in-house transportation direct requirement coefficients in the TSAs direct requirements table for the producing industry. For commodities in the TSAs make table produced in more than one industry, the cost of all for-hire and in-house transportation services equals the sum of all for-hire and in-house transportation direct requirement coefficients from the TSAs direct requirements table weighted by the ratio of the commodity value to total commodity output for the producing industry (from the TSAs make table).