Direct and Indirect Effects of Transportation on the Economy

Transportation has both a direct and an indirect effect on the economy. The direct effect is the change in transportation output caused by a change in demand for another product; the indirect effect is the change, induced by a change in the demand for transportation, in the output of another industry or industries. The direct effect can be measured by the increase (or decrease) in the amount of transportation required to support a dollar increase (or decrease) in an industry's production. This amount is shown in the TSA total requirements table.

The total requirements table shows the amount of transportation output required (for each of the transportation modes listed on the industry-by-commodity direct requirements table's columns) to deliver a dollar of a commodity (listed on the industry-by-commodity table's rows) to consumers. This information is summarized in table 5. As shown in table 5, transportation (for-hire and in-house combined) was used most heavily to deliver a dollar of utilities to final users in 2002 (7.4¢). The largest amount of transportation (for-hire and in-house combined) was required to deliver manufacturing products in 2004 through 2006. More transportation was required to deliver manufacturing goods than utilities because of the decline in the use of transportation within the utilities industry, which is the primary producer of utilities, despite an overall increase in output by the utilities industry.

The total requirements, which, as discussed, show the amount of transportation required to deliver a dollar of goods to consumers, can be used to measure the additional amount of transportation required to meet a change in demand. If, for instance, the demand for output from the manufacturing industry (e.g., from increased consumer demand for wholesale like grocery product wholesalers) were to increase by $1 billion in 2006, then an additional $61.0 million ($1 billion * 0.0610) of transportation services would be required. Commodities with smaller direct requirements will require less additional transportation services to meet an increase in demand.

(See table 5. For further detail, see Appendix A, table 4 at this page.)

The indirect effect of transportation on the economy is captured in the TSA industry-by-commodity total requirement table. In the industry-by-commodity total requirement table, the values below the transportation columns are the amount of industry (e.g., in natural resources and mining, construction, etc.) output needed to provide a dollar of transportation. For instance, in 2002, to provide a billion dollars of in-house air transportation, the natural resources and mining industry is required to produce $29.7 million ($1 billion * 0.0297) of industry output, the construction industry is required to produce $7.5 million ($1 billion * 0.00753) of industry output, and so forth. The output required by all industries to provide a dollar of transportation is given by the total industry output requirement at the bottom of the transportation columns in the industry-by-commodity total requirement table and in table 6. Table 6 shows that, in 2002, to deliver a billion dollars of in-house air transportation, output by all industries would need to increase by 202.94 million ($1 billion * 2.02938).

The increase in output comes about from an increase in the demand for commodities supporting in-house air transportation, such as airplane parts, aviation fuel, etc. Output will increase by a larger amount when a larger number of commodities are required to support the increase and/or when the required commodities are more costly to produce. With the exception of rail, for-hire air, truck, and water transportation industry output multipliers grew from 2002 to 2006, but not steadily. The in-house counterparts declined slightly, with the exception of in-house water transportation (see table 6). Due to this slight decline, the for-hire air, rail, truck, and water multipliers are larger than the in-house counterparts in 2006, but were not larger for all for-hire versus in-house modes in previous years.