Economic Outcomes and Regional Disparity of High-Speed Railways

Interviewee MANAGI Shunsuke (Faculty Fellow, RIETI)
Issue date / NO. Research Digest No.17
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The development of transportation infrastructure is a “double-edged sword” that brings economic development but also promotes regional disparities. This study illuminates the causal relationship between high-speed railway expansion and economic development, focusing on Japan’s Shinkansen bullet trains from 1983 to 2020. The study found that a 1% increase in market access increases the land price by 0.176%, income by 0.425%, and income per capita by 0.023% across Japan. However, most of the economic benefits are generated by the metropolitan areas. RIETI Senior Fellow KONDO Keisuke asked RIETI Faculty Fellow MANAGI Shunsuke who is also a Distinguished Professor of Technology and Policy, Director of Urban Institute at Kyushu University about this research, touching not only on the economic benefits but also the potential to lead to inclusive wealth.

Interviewer: KONDO Keisuke
Senior Fellow / Associate Professor, Research Institute for Economics and Business Administration (RIEB), Kobe University

A first step in the study of inclusive wealth

Kondo: First of all, could you introduce your field of expertise?

Managi: I am trying to link various fields such as urban planning, the environment, resources and energy rather than treat them as separate, and to view them within the framework of economics. In the area of environmental issues, reducing air pollution is also related to the field of health. I am also in charge of urban planning in the Department of Civil Engineering at my university, and I feel that I am helping to connect and develop the fields of civil engineering-based urban planning and economics.

Kondo: What made you focus on high-speed railways in this study?

Managi: First, I was interested in infrastructure as an area where the economic impact has not been fully measured. For this study, we wanted to focus on something that would have a large impact throughout Japan from a policy perspective, so we decided to focus on the development of the Shinkansen, Japan’s high-speed railway (HSR) system. This is still a high-profile topic, with the Nishi Kyushu Shinkansen being in operation and the Hokuriku Shinkansen extending to Fukui. We see HSR as an interesting theme in terms of infrastructure that will continue to develop globally in the future.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) conducts cost–benefit analysis, which is an analysis of the benefits and other effects in relation to the costs of a project from the perspective of socio-economic efficiency, before undertaking public works projects. But ex-post evaluation is insufficient, and it is difficult to say that the results of past ex-post evaluations are being used in subsequent policies. I believe that it would be very meaningful to closely examine past public works projects for the cost and extent of maintenance of infrastructure after they are built, in light of geographical characteristics. In terms of industry, if infrastructure changes the location of plants, offices and other workplaces, it should also have an impact on the environment and energy. For example, simply put, more energy is used in urban centers, but the energy efficiency per capita is better. On the other hand, there is also traffic congestion and a higher risk of photochemical smog and air pollution. If this is the case, health hazards are also a concern. Relief from these problems can be obtained by living in non-metropolitan areas, but if the infrastructure in non-metropolitan areas is weak, other inconveniences will arise. These will be counteracted and supported by automobiles or the Shinkansen.

On a slightly larger scale, United Nations (UN) Secretary-General António Guterres has issued a message that from now on the value of the world and society should be measured not only by gross domestic product (GDP) but also by incorporating various factors such as the value of nature and human happiness. To put this into practice in actual decision-making, it is important to evaluate even detailed data and to learn what would be positive or negative. With the Shinkansen, I would like to expand the analysis to include the effects on well-being and air pollution, but I think we should start at the base and examine the economic effects of the Shinkansen itself. The purpose of this study was to address the economic aspect as a first step.

Economic impact measured by market access

Kondo: Please tell us about the concept of market access, which is a key element in this study.

Managi: “Market access” is an indicator used in empirical studies of railways in the United States, and we employed it in this study as well. It is a concept that estimates the market potential of connecting two regions with new infrastructure, looking at how much travel time can be reduced and how many people can newly access the market. The larger the populations of the two areas to be connected, the greater the market accessibility due to the time savings. Even in areas not served by trains, it is possible to evaluate the effect of indirect access improvements due to the opening of a Shinkansen line in neighboring areas (Figure 1). With this indicator, we evaluated the causal effect of infrastructure in Japan. It can also be used for wide-area urban planning by dividing and inspecting the data by region and considering regional differences.

Figure 1: Market access evolution in Japan
Figure 1: Market access evolution in Japan
Source: DP22-E-060 Fig. 3

In this study, we estimated the economic impact of the Shinkansen by dividing the data into four regional groups: Tokyo; the three major metropolitan areas of Tokyo, Osaka and Nagoya; the regional medium-sized metropolitan areas of Sapporo, Sendai, Hiroshima and Fukuoka; and other regions (Figure 2).

Figure 2: Regional categories
Figure 2: Regional categories
Source: DP22-E-060 Fig. 4

As a result, we found that a 1% increase in market access leads to a 0.176% increase in land prices nationwide. By region, the positive effect on land prices occurred only in Tokyo, megacities and regional cores, whereas no positive effect occurred in rural cities. In other words, it became clear that there are regional disparities in the economic effects of Shinkansen line development. In an unexpected finding, the positive effect was larger in regional cores than in the central Tokyo metropolitan area. I believe that constructive discussions can proceed only when the characteristics of each region are shown in clear figures such as these.

Kondo: Did you have any difficulties in analyzing the data?

Managi: We took long-term data covering all municipalities in Japan from 1983 to 2020, so we had a huge amount of data to handle, but we seven authors divided the work among ourselves to get through it. We felt that it would have been better if we had had data from even earlier periods. It would have been ideal to have data from the very beginning of the Shinkansen’s construction.

Nevertheless, the fact that long-term data is well maintained and available in Japan is a strong point of Japanese government statistics. Although the statistical surveys may decrease in the future due to budget cuts and other factors, satellite images and alternative data are becoming more accurate thanks to the development of artificial intelligence, so I hope that there will be an abundance of data that can be used for research. I also think it is necessary to demonstrate that it is important to have data in order to conduct ex-post evaluation and set future goals.

Kondo: How is this study different from previous studies?

Managi: There have long been studies on the economic effects of U.S. railways and regional economic development from the perspective of logistics connecting a vast landscape. In the U.S., there are previous studies that have evaluated these old topics with causality, using market access. In Japan, studies on the Shinkansen have been conducted using quasi-experimental methods, such as difference-in-differences (DID) analysis of treatment and control groups. However, this is not suitable for estimating how different the economic effects of the Shinkansen are in each region, as the effects are expected to be felt in areas other than those where train stations have been built. To address this issue, market access was used as an indicator in this study. This is the first attempt to provide quantitative measures of the market access related to the Shinkansen in Japan, as there has never been a study of this kind before.

In Japan, market access is not used in cost–benefit analysis, but I hope that this approach will eventually become the standard for how cost–benefit is viewed.

High-speed railway development is a double-edged sword

Kondo: What is your view on the conclusion of the study that high-speed railway development is a “double-edged sword?”

Managi: Although regional disparities are generated, the economic effects of the Shinkansen are more positive than negative, as seen in the benefits that were extended even to medium-sized metropolitan areas. Although not included in the paper, if we track the effects from year to year, we find that in towns that can be considered relatively medium-sized, the economic impact is almost negligible at the beginning of the Shinkansen service, but gradually increases due to the effects of the expanding network. Also, the reason why the effect in the three major metropolitan areas is lower is that each city is already established as a core location, so while it can contribute to the surrounding areas, it does not generate much new positive effect in the city itself. If greater effects are to be expected, the network as a whole must be connected with a certain degree of density while keeping an eye on the balance of the cities. Also, if only two connected places undergo development and the development does not extend to the surrounding areas, the economic effect will be small.

As we can show the economic impact of the Shinkansen numerically, it will be useful in understanding both positive and negative aspects and in simulating the currently planned regional extensions of the Shinkansen and the future maglev Chuo Shinkansen line. If there is a policy demand, we would like to link our analysis to internal policy discussions reflecting the results. At present, there are not many plans for the next phase of the maglev Chuo Shinkansen once it opens. How the fares are set and how many people it is expected to carry will greatly affect the level of development of the surrounding cities. With this in mind, the allocation of train schedules, station locations and other factors need to be considered. I hope that Evidence-Based Policy Making (EBPM), digital transformation (DX), green transformation (GX), and the Vision for a Digital Garden City Nation will help people understand the significance of using data and analysis.

Kondo: What is the main reason to focus on land prices and income as dependent variables to measure the economic effects of the Shinkansen?

Managi: The reason is that with land prices, we have the most detailed data available throughout Japan. Changes in land prices can be said to reflect the economic effects of the Shinkansen. We would also like to closely inspect the impact on industry, for example, but we do not have detailed industrial data, so this study focused on measuring the local economic effect of the Shinkansen using land prices as the variable.

We also found that the economic effect of the Shinkansen on income per capita in non-metropolitan areas was negative. This is probably because small non-metropolitan cities are often the last stops, and “spongification” (i.e., vacant lots and houses, resulting in a porous structure like a sponge) occurs, with the Shinkansen facilitating the outflow of people. Even if a Shinkansen line is built to “trigger development,” the effect may actually be negative. In a simple analysis, it is often judged as “break-even,” but I believe that the results clearly show that even if the effect of the Shinkansen is positive across Japan on a nationwide basis, the effect is concentrated in urban areas. And when looking only at non-metropolitan areas, the effect is negative due to the progress of spongification.

Community planning connecting the future

Kondo: Do you have any advice for policymakers?

Managi: The construction of Shinkansen lines is, in reality, heavily influenced by politics. I think the current situation is that politicians make public promises to “build a Shinkansen line” and then try to force the project through by laying out figures that are not well supported and claiming positive effects. There is a huge cost at the time of construction, but the fact that many companies benefit from it is one of the reasons why it is possible for the system to be established. A Shinkansen project will boost the economy in the short term.

However, we wondered what the long-term effects are, and upon investigation, we found that, in fact, they were not all that good in non-metropolitan areas.

If there is anything that I can suggest to the areas where the Shinkansen line is about to be constructed, it may seem obvious, but the closer the existing station and the Shinkansen station are, the better. The closer they are, the more predictable the development of commercial facilities and the city will be. In reality, however, a Shinkansen station ends up being built a little farther away for various reasons, such as a lack of surplus land. In this case, development cannot be achieved in the long term, and with the station distant from other infrastructure and difficult to use, only negative aspects result, such as spongification, with no positive effects expected.

Therefore, as is true not only in non-metropolitan areas but also in large cities, it is difficult to generate positive effects unless people make good use of areas with good accessibility. Osaka and Shin-Osaka stations are also distant from each other, so that is an issue in the area. There needs to be more exhaustive discussions on how to connect Shinkansen and conventional lines to the next step of development, and a structure that connects to the future should be thought about at the level of community planning. I think this can be done even now.

It would be easier to do if the local governments could set goals to create that structure. It would give each party involved a reason to start moving and enable explanation to related stakeholders. Proposals for goals set by the administration would have to go through regional assemblies, but at that time, the numbers from our analysis will provide support. I think our study will lead to the further consideration on, for example, how we can find a simple way to connect two locations so that the regions do not become exhausted.

Collaborate with industry to incorporate highly accurate data

Kondo: Could you share your findings on infrastructure development?

Managi: Industry, including local banks, is eagerly considering the creation of wide-area infrastructure. From their point of view, it is natural to aim for local development, as it is the place where they do business for survival, and with their support, the region will develop as a result. Therefore, in non-metropolitan areas, politics is not the only thing that determines the next direction. Because of the cooperative relationship between local industry and politics, people should be able to create better communities and plans that will enable development over a wide area, based on highly accurate data. We conducted this study using only publicly available data, but it would be great if we could also collaborate to use data held by industry, such as telecommunications and freight forwarding.

This study focused on the Shinkansen across Japan, but the same logic is applicable for analyzing all transportation infrastructure development within a region. Right now, the Vision for a Digital Garden City Nation, DX and GX are being promoted, and I believe it is important to include the effective use of data.

In community planning, data-driven ex-ante and ex-post evaluations would be quite helpful in reducing costs and would also benefit the private sector.

Kondo: Finally, what is your outlook for future research?

Managi: In this paper, I wanted to show that we can glean a lot of information about infrastructure even from open data. I would also like to investigate measures of well-being such as air pollution, ease of mobility for residents, and low levels of traffic congestion. The UN’s Inclusive Wealth Index, which I mentioned at the beginning, is useful for measuring such values that are not expressed in GDP. It is not limited to hard infrastructure but also takes into account soft factors such as nature and health. Analyzing data to show what kind of infrastructure makes people happy could lead to new national infrastructure proposals, which also could easily spread to non-metropolitan areas. We plan to conduct research on how to create a structure in which companies that can make good use of such infrastructure will benefit.

Kondo: It is true that economic analysis is all about measuring GDP and economic benefits, which underestimates the significance of rural areas. It is important to consider what kind of infrastructure development should be promoted by the national and local governments, with an eye to the happiness and well-being of the real people beyond the conventional cost–benefit analysis. Thank you very much.