Implications of an Infrastructure Corridor for Alberta’s Economy

The benefits of increased pipeline access for Alberta’s economy are well known. The benefits of infrastructure corridors, however, go far beyond pipelines. By reducing interprovincial and international trade costs, multi-modal infrastructure corridors of road, rail, utilities and communications can potentially create large economic benefits. In this paper, we quantify the potential economic gains in Alberta from reductions in trade costs and identify the importance of improved access to lower cost transportation options like rail for select commodities. Combining rich data on interprovincial trade flows with mode-specific shipment data on volumes, values, and shipment costs, we find that rail shipments are a lower cost means of exporting goods for long-distance trade. We estimate increased rail penetration lowers trade costs by roughly 0.3 per cent for each percentage point of rail’s share of shipments. We also estimate economic gains from lower trade costs. We find that lowering trade costs substantially increases Alberta’s real GDP through its effect on international and interprovincial trade flows. Infrastructure capacity is particularly valuable, as we find that increasing the share of exports shipped by rail by ten percentage points may increase Alberta’s GDP by nearly 1.5 per cent in the short-run and over 2.5 per cent in the long-run — equivalent to over $9 billion per year in economic activity.