A theory of the impact of transportation infrastructure on inventory, price and consumption with an empirical study of Canada and Australia

Investment in transportation infrastructure is an externality to the firm, yet the impact of that investment affects both the customer and the factors of the firm. The literature on investment in transportation infrastructure is extensive. There is an emerging literature on the effects of inventories on prices and outputs of the firm. Yet nowhere in either literature is found an analysis of the impact of transportation infrastructure investment upon the firm's inventories. This dissertation examines the variables affecting the inventory of the firm and analyses the impact of investment in transportation infrastructure on that inventory and resulting consumption.;A simple, dynamic inventory model under uncertainty was developed as part of a cost function for the firm. The lead time component of the inventory model was postulated to be a function of the capital invested in transportation infrastructure. The capital investment was segregated into two parts, capital in place and current capital investments in transportation infrastructure. The resulting cost function of the firm was then related to the firm's market under the assumption that the firm minimizes costs as a price-taker in a competitive environment.;The comparative static analysis demonstrated that increased capital in transportation infrastructure will provide a positive return to consumption, as evidenced by increased sales to the firm. The analysis showed that during the periods of investment the firm's costs--hence prices and consumption--will oscillate, finally resulting in lower costs to the firm. It was assumed that the derived cost equation represented the aggregate firm in a city and it was hypothesized that any investment in a transportation infrastructure in the region would impact on the firm and be evident as a change in consumption in the city.;The cost equation of the firm was then linearized. Two independent data sets were used to test the hypothesis. Canadian data, 1960 to 1979, and Australian data, 1972 to 1981, were obtained by transport mode on a regional basis. The linear equation using these data and income and consumption data for major cities in each region was then estimated for each city using multiple regression. All cities in each data set were regressed together using a Zellner seemingly unrelated regression procedure.;Statistically significant results were obtained from the regressions on each data set which show that investment in a regional transportation infrastructure produces oscillations in consumption (i.e., a business cycle) and permanent changes in levels of consumption.;The results demonstrated that capital in transportation infrastructure has provided negative returns, lower consumption, to some Canadian and Australian cities and that a condition exists where firms may enhance profit through a quantity adjustment rule.