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Estimating the economic impacts of the Padma bridge in Bangladesh

Raihan, Selim and Khondker, Bazlul Haque (2010): Estimating the economic impacts of the Padma bridge in Bangladesh.

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Abstract

By facilitating transportation across the river, the Padma Bridge is expected lead to the greater integration of regional markets within the Bangladeshi national economy. On the basis of their suitability of capture primary and secondary economic impacts of construction project, three different types of economy wide models are employed in addition to traditional traffic model to capture the total and economy wide impacts of Padma Bridge. Although outcomes of all types of models are positive, the results show variations due to especially to size of shocks. The results are summarized below. In the Traffic model, road users benefits are estimated based on the saving on vehicle operation costs (VOC) and savings in travel time cost (TTC). Total road user benefit is estimated to be about million 1,295,840 taka over the 31 year period. Out of the total cost of the project ($2.9 billion), it was estimated that about $2.1 billion would be injected into the economy and the rest consists of imports, IDC etc. Injection of $2.1 billion into the economy using national SAM model envisaged value added increase of 453,670 million taka. This increase implies that annualized equivalent rate for national GDP would be 0.33 percent compared to the national base GDP (i.e. 4,468,549 million taka). Annual equivalent rates of growth were calculated keeping in view the 31 years as the time taken to fully realize the impact of the bridge. If we took a shorter time horizon for fully realizing the benefit of growth, then the annual equivalent rates could be larger. On the other hand, injection of $2.1 billion into the regional economy using the regional SAM model envisaged that annualized equivalent rate for regional GDP would be 2.3 percent compared to the regional base GDP. However, if it assumed that only 70 percent of the shock would be operative in the region (against full 100 percent or $2.1 billion), the annualized equivalent rate for regional GDP would be roughly 1.66 percent of the regional base GDP. Given that the SAM model assume excess capacity (which may be a reasonable assumption in a country like Bangladesh with under-utilized resources), the size of impacts vary with the size of injection or shock. Using the Traffic mode, road users benefit is found to be million 1,295,840 taka. We consider value added increase of million 453,670 taka derived from the national SAM model (i.e. simulation 1A) as economy wide benefits of the project. Thus, total project benefit is estimated to be 1,749,510 million taka (i.e. Total (1,749,510) = Road User Benefit (=1,295,840) + WEB (=453,670). This implies that total project benefit is 39 percent relative to the base national income (i.e. 4,468,549). Assuming the 31 year full realization timeframe, total project benefits per year is then 1.26 percent relative to the base national income. The base GDP figure would change over 31 years. Assuming 5 percent GDP growth over the 31 period an alternative estimate of base year is arrived. The total project benefit (i.e. 1,749,510) is only 0.56 percent relative to the alternative base national income (average GDP during that period).

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