Study Finds that Driving has a Positive Effect on the EconomyEfforts to “Get People out of their Cars” Put Economy at Risk

For Immediate Release

Contact: John A. Charles, Jr., 503/242-0900
Randall Pozdena, 503/368-4604

October 28, 2009 – Cascade Policy Institute has released an empirical study examining the relationship between vehicle-miles-travelled (VMT) and Gross Domestic Product (GDP). The study finds that “VMT is a large and statistically significant driver of GDP” and cautions that artificial attempts to limit driving through taxation or regulation will cause a significant decrease in economic output.

Specifically, if the government reduces VMT through mandates, GDP will decline by almost the same percentage as the drop in VMT, over a two-year period. Over a longer period, GDP will drop by about 46% of the rate of VMT decline.

The study uses historical data from the U.S. and from 177 countries to examine the relationship among vehicle activity, energy use, and the economy. The findings confirm much of what has been suspected about the relationship between VMT and the economy in the state of Oregon. For instance, according to the Oregon Department of Transportation (ODOT), there is a strong correlation between VMT and job creation. For every new job created, we can expect an additional 15,500 VMT.

There is also a strong relationship between VMT and personal income. ODOT finds that VMT per capita rises by roughly 360 miles for every increase of $1,000 in personal income.

However, ODOT has never examined these trends to see if there is a cause-and-effect relationship between driving and economic productivity. The Cascade study, done using techniques that isolate cause and effect, suggests that there is indeed a causal relationship. Therefore, Oregon’s current and planned policies to mandate reduced driving likely will have severe economic consequences for the state.

Some of those policies include the statewide Transportation Planning Rule administered by the Land Conservation and Development Commission, mandates enacted recently by the legislature in HB 2001, and the expected adoption today of a local “Climate Action Plan” by the Portland City Council. All of these VMT reduction mandates, if aggressively implemented, would reduce job growth in Oregon and lower overall state GDP, while having no measurable effect on climate or local air quality.

The one policy option endorsed by the Cascade study is the implementation of peak-hour pricing of urban highways, or “congestion pricing.” Peak-hour pricing would reduce the economic losses associated with time lost in traffic congestion, and also improve local air quality by eliminating the stop-and-go conditions that lead to less efficient engine combustion and excess fuel consumption. While congestion pricing might or might not lead to a reduction in total driving, it would have substantial net social benefits by improving the efficiency of the regional highway system and thus increasing state GDP.

According to Cascade President John A. Charles, Jr., “If Oregon politicians believe in job creation and increased household income – as almost all claim they do – then they also have to be in favor of increased automobile driving and a better highway system. Reconciling the conflict between the positive effects of driving and our state’s anti-driving policies will be one of the central challenges for decision-makers in the near future.”

The Cascade study was performed by Dr. Randall Pozdena, an international expert in transportation economics and president of QuantEcon, a consulting firm based in Manzanita. The study was funded by the Bipartisan Policy Center of Washington, D.C.

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Cascade Policy Institute is a market-oriented policy research center based in SW Portland.