Shrinking the Atlantic Ocean – A Case of Transatlantic Superspeed VacTrain

by Shota Gvaramadze

The idea of it was first proposed by Michel Verne in his book in 1888, a son of the famous French science fiction author Jules Verne. But it was not until 60ies when engineering visionaries started to get into the science of building a transatlantic superspeed vac-train (TSV). The idea is spectacular and audacious, as well as unimaginably hard and expensive by today’s capacities and costs.  

A TSV train would hover above the track without physically touching it thanks to the magnets, eliminating the rail friction altogether (which limits the train speed). Magnetic levitation train is no longer a science fiction; such train already has been serving a route between Shanghai city and its airport since 2004. Different from a conventional maglev train, TSV would be moving in a vacuum tunnel submerged and fixed 50 meters above the bottom of Atlantic Ocean (shown on the picture), eliminating another source of friction - air. By eliminating two sources of friction, air and rail track, the train will be able to accelerate up to the speed of 8000 km/h allowing the train to cover a distance of 5000 kilometers between London and New York in just 54 minutes, shrinking the time and space between two continents (it would take 20 minutes to reach the full speed and same time to slow down to make the journey comfortable for passengers. This is the reason why it would take about 54 minutes to travel and not less).

Different sources estimate the cost of project from $175 billion up to staggering $12 trillion making the project unimaginable to be embraced by any current government. For a comparison, average cost of building a 500 km HSR track in Europe is estimated to be around 10 billion EUR (operational costs not included). This number doesn’t even reach the lowest proposed cost of $175 billion. However, as the engineering and material sciences evolve and advance, costs will be pushed down to a point where undertaking such venture might even become possible. In spite of all costs, uncertainties, technical feasibility, risks associated with under water travel (which is way outside of the scope of this article), I think it would still be interesting to look into the socio-economic impacts of such a grandiose undertaking should it one day become a reality.

The Japanese and European experiences show that HSR trains that cover the distances between two cities in less than 2.5 hours can obtain 80-90% of all air traffic and 50% if HSR train covers the distance in less than 4.5 hours. TSV easily meets this requirement. Financial Times in 2009 listed London – New York flight as the third busiest international route with annual number of passengers slightly over 1,6 million. By transporting 80-90% of those passengers, TSV will be one of the busiest train routes on earth.

High Speed Rail (HSR) projects almost never cover their infrastructure and operational costs and are therefore financed by tax payers’ money. Such spending is always justified by the wider social and economic benefits HSRs bring. These are passenger time savings, reduction in congestion, reduction in accidents, reduction in environmental externalities and benefits including the development of the less developed regions. Historically, United States and UK have favored HSR projects much less than other European countries, Japan or China. However, if such project was ever given a green light by British and American governments, TSV would make impossible possible and have a number of wide scale social and economic effects on two cities.

A study on UK’s InterCity 125/225, a HSR network, has shown that towns that became reachable from London within 1 and 2 hours, had higher employment rates as well as gross value added per head after the construction of HSR line. Employment increase was highest in knowledge intensive business services and creative industries. Reason for this is the high cost of tacit knowledge exchange in spite of advancement of information and communication technologies. Therefore, New York and London, two hubs of advanced and high value added service industries have very high potential to benefit from a TSV. Cutting a travel time between two cities from 7 hours (by air) to 54 minutes would enable more frequent business meetings, increase working hours of business travelers and as a result increase the productivity of firms. Extent of productivity will also depend on ticket costs, whether every day commuting would be possible, uniting two job markets into one, increasing the size of the labor market pool and enabling workers to move from less productive to more productive jobs between two cities. These two cities as agglomerated as they already are would become even more competitive, with firms having larger markets and enjoying the scale economies. As world’s two financial centers, these cities probably have most in common than any other two cities in different countries. By having similar physical size and economies, as well as identical intellectual resources and endowments, these two cities could benefit from a shared and united market most. On the negative side, as the output of these two cities would increase, so would the congestion and office rents, which already pose enormous problems to  respective city officials.

As history has already shown, often impossible can quickly become possible. So who knows maybe one day it will really be possible to have lunch on Manhattan and still make it to London for an evening theatre performance. 

History Matters: Two Significant Barriers to the Regional Policy of Mongolia

by Manlaibaatar Zagdbazar

According to the New Economic Geography theory, history matters because increasing returns to scale generate positive feedbacks that tend to cause economies to “lock in” to particular locations. Here, however, I would like to analyze other kind of reasons to show that history really matters.

1) Path dependence in railway standards.

As railways developed and expanded, one of the key issue was that of the track gauge (the distance, or width, between the inner sides of the rails) that should be used. A large part of the world uses a "standard gauge" of 4 ft 8 1⁄2 in (1,435 mm), while the former Soviet Union countries use a “broad gauge” of 5 ft (1.524mm). When a railway line of one gauge meets a line of another gauge, a break of gauge occurs, which entails big cost and inconvenience to traffic that passes from one system to another. For example, Transmongolian Railway, where Russia and Mongolia use broad gauge while China uses standard gauge; on the border, each carriage has to be lifted in turn to have its wheels changed. The whole operation can take several hours.

This challenge of gauge size does not only inhibit the trade between China and Mongolia, but also makes it more difficult to implement many regional projects in South and East Mongolia – greatly endowed regions full of mineral resources and suitable for other development potentials. In the picture shown below, red dashed lines are new railroad building projects that use “broad standard” gauge. Unfortunately, no one wants to invest into these projects because they still have the break of gauge problem with China’s railways.

2) Political and psychological inertia.

The country of Mongolia is divided into 21 provinces and the capital city. Provinces are subdivided "sums", in total number of 331 items. Such “patched” administrative division is too costly for only 1 million of rural people (total population of Mongolia is about 2.7 million), because each sum has a permanent settlement as administrative center having its own secondary school and dorm, a hospital, a cultural center, and police that are subsidized by central government. To demonstrate, in most sums, school has only few students, while required operational costs are huge: salary for teachers, building maintenance costs, and heating, especially during very cold winter. All these costs cannot be well reasoned under low quality of education. 

Historically, this administrative division was inherited from the socialist time and was originally created to develop the network of collecting livestock by-products. Now, as people migrate to big towns, these artificial administrative centers are being almost deserted. For last two decades, some politicians tried to change the situation by creating bigger administrative units which were supposed to be more efficient and natural, but the majority of politicians and public were against this idea, being morally and emotionally used to having these old units. In addition, the Constitution and the Election code also make it difficult to change the old system and, therefore, “locked in” inefficient artificial spreading still exists.

Consequently, in real life, regional policy can face bigger historical barriers than initially expected. If you create and find better solutions you have to invest enormous amount of efforts and resources to implement it. 

Trans-Siberian Railway: Voice of Siberia

by Ekaterina Serikova

Do you know where Siberia is located? Some Europeans feel that it is just “too far”. I would not exaggerate by saying that even Russians do not always know exactly where this region is located, assuming the periphery of it. However, it would have been even worse  if  in  the  20th   century  the  general  governor  of  Eastern  Siberia  N.  Muravyov- Amurskly did not start to build Great Siberian Way that connected central Russia with Siberia. This railway had significant influences on many areas’ development where it was built, while analyzing its impact on the development of Siberian region is of particular interest. The goal is to show how government  infrastructure projects can give live to economy of a particular region, entailing certain extent of policy selectivity and a matter of history.

The  project  heavily  affected  the  Siberian  region  in  several  aspects:  industry development, trade, labor mobility, foreign investments, and international relations.

Siberia was a huge and well-endowed region, having huge reserves of coal and peat, more than 50% of the whole of Russia’s forest reserves, lots of gold fields, salt, and non- metallic minerals.  Obviously, the Railway aimed to take advantage of these industries, which caused their rapid development. For  example, the changes in gold industry was caused not only by increased gold extraction, but also by structural changes, such as the switch from manufactures to modern factories as well as technical renewing due to easier transporting of necessary inventory and hardware. Thus, despite the Russian-Japanese war, average yearly gold extraction in 1901-1910 was 2289 poods1, which is 127% higher than during the last decade of the 19 century2.  Since the railway needed fuel, coal industry advanced a lot: by 1910 coal extraction already constituted 7% of total Russian coal extraction. Being mostly developed as “servicing” industry for the railway, coal industry growth also improved technological progress in other industries, switching them away  from  firewood   usage.  Other  industries  mentioned  above  were  also  raised significantly: salt, wood, and butter was exported heavily.

Obviously, such intensive industrial growth attracted huge capital inflow in the region. By 1912 a large net of trade places was already created: 60,000 retail shops, total trade in the Siberian part of the railway increased more than in 4 times in 1900-1913.

The Railway also led to the movement of labor to the cities located along the way, which can be explained  by people’s expectations of higher wage and access to larger market. Consequently, the cultivation area was extended together with agriculture growth and increased specialization. 80% of all imports of agricultural machinery in Russia were sent to Siberia because there were huge amount of unused land and lots of labor that came  because  of  the  Railway.  Later,  these  places  became  the  largest  and  the  most developed  Siberian  cities  with  the  highest  land  rent  –  Novosibirsk,  Irkutsk,  Omsk, Krasnoyarsk, which are still fundamentally important  Siberian cities. The creation of large cities and movement of labor into them, however, caused demise of  previously popular trade places, such as the Irbit fair that stayed more than 100km away from the Railway.

However, the overall impact of the railway was not as positive as it seems to be: many economists claim that the Great Siberian Way was the cause of making Siberia a “raw materials adjunct” for the whole of  Russia. As we can observe, development of local industries was not symmetric, it mostly favored industries  that  were connected closely with the needs of the railway. For example, metallurgy died as fast as it was raised  due to railway needs: smelting cast ironing was 540,000 poods in 1895 versus 150,000 poods in 19082.

Beside  this,  relations  between  Russia  and  China  began  to  develop  sharply: merchants from Siberia moved to China as well as a huge number of swindlers flowed into Siberia being attracted by high  profits. The rise of local and international trade caused progress in banking sector: by 1912 there were  already  106 bank offices in Siberia. However, they were mostly involved in trading finance instead of local heavy industry financing.

Being started from a local project connecting central Russia with Siberia, now Trans-Siberian Railroad is the largest international railway in the world that connects Far East with Western Europe, reaching 5,867 miles in length. For the country, it is also the source  of  income  which  has  increased  throughout  the  time  together  with  increased international trade and railway’s capacity. After 100 years of existence, this Railroad can still offer perspective alternatives for the future: there is a plan of prolonging the Railway to Sakhalin Island over the Nailski Strait, which will connect Eurasia with Sakhalin3.

Trans-Siberian Railway demonstrates a dramatic support of successful government interventions  in  economic  life  and  regional  development.  Despite  policy  selectivity favoring some particular places  (cities  along the railway), such interventions can be vitally essential for initial economic development of far regions.

Economic Effects of Cologne (Köln) - Frankfurt High Speed Rail

by Natalia Costin

The Cologne – Frankfurt high speed rail started operating in 2002 .The Speed of the train, running at 320 km/h, reduced the journey from 2hr 15 min to over an hour. The number of passengers willing to travel increased significantly by 2010 to around 20-25 million from 9 million. With high speed rail, travel time between Frankfurt and Cologne is 55 percent faster than with old track and 35 percent faster than with travel by car.  As a result of a new ICF we would expect some economic changes in Cologne and Frankfurt, however our expectations would be wrong because an economic impact was present just in the cities situated on the line of high speed rail which were: Limburg, Siegburg and Montabaur.

Travel Time Treatment

 

Research from LSE looked at prosperity and growth of intermediate stations, Limburg and Montabaur and compared the economic performance of those towns with more then 3,000 other municipals in the neighborhoods . During four year period of fast train activity the economic growth grew by at least 2, 7 percentage more in those two cities that are on the route compared to unconnected neighbors.  Additionally in Limburg and Montabaur in the market potential indicator is present an increase of about 30%. 

ICE train stations in Limburg and Montabaur are most often used for work purpose, to travel daily to Frankfurt. This point highlights that high speed rail Cologne- Frankfurt has an important effect on job creation in both regions. For example per day there is approximately 80 percent of daily commuters from Limburg and 60 percent from Montabaur.  Additionally the attractiveness of ICE increases with time.  Figure 1 show that Cologne and Frankfurt can be reached now by roughly 40 minutes train rides from Limburg and Montabaur, “making their location central with respect to two of the major regional economic agglomerations with a total population of approx. 15 million”. 

High speed rail motivate people to move closer to its route. There was a survey taken in Montabaur and Limburg which could provide an explanation for inflow of new residence.  The results of survey highlight the point that about 20 percent of Montabaur commuters and roughly 15 percent of Limburg commuters moved closer to high speed rail because of improved speed and accessibility it offers. 

In case of another intermediate station Siegburg, investigations of the Geographical Institute of Bonn University have shown that roughly 90 percent of passengers travel with high speed rail to and from Frankfurt. Additionally it was observed that partly as a result of Inter-City Express real estate investment increased there. Studies of Bonn University stated that Inter-City Express in Siegburg as well increased the inflow of population similarly to Montabaur and Limburg. For example 3 percent of Siegburg population has chosen the location based just on high speed rail access.

Frankfurt as a result of Inter-City Express had attracted more commuters compared to Cologne. There were not that many trips for example from Siegburg to Cologne as from Siegburg to Frankfurt. Frankfurt was more attractive place for commuters because in Frankfurt there is larger labor market. It is interesting to mention that there is no evidence of formation of megapolis between Frankfurt and Cologne, as someone would expect. The reason could be reduced business interaction between both regions because Cologne is a cultural center while Frankfurt is a financial and banking center.

In conclusion in main regions Cologne and Frankfurt no significant changes in economic impact were described as a result of Inter-City Express. However the increase in accessibility of high speed intermediate stations such as Limburg, Siegburg and Montabaur to Frankfurt and Cologne promoted rise in economic development. The increase in market access influenced on the increase in GDP, higher employment possibilities, increase in real estate price, variation in access to market and reduced travel time.  

Why are Transport Projects so Important for Our Economic Development?

By Evgenia Ivanova

As the US President Barack Obama has once said: “A major new high-speed rail line will generate many thousands of construction jobs over several years, as well as permanent jobs for rail employees and increased economic activity in the destinations these trains serve.” The quote is indeed true and it made me think how we rarely have the chance to stop for a moment and consider the positive economic benefits of transport projects. Their tremendous impact on the way we live not only shortens the distance and brings us close together but they also alter our environment through agglomeration formation. The high-speed rail (HSR) serving the road between Cologne and Frankfurt in Germany is an excellent example to illustrate my point.

Opened for the first time in 2002 as an Inter-City Express (ICE) high-speed passenger dedicated line, it serves the 177 kilometers distance between Cologne and Frankfurt. With trains running at a speed of 320 km/h, this ICE has reduced the rail time from 2h 15 min to just a bit over an hour for the non-stop services. Less than ten years after the first train started operating, there are plenty of evidence for the positive effects that the ICE line brought for the regional development and the labor markets of the smaller towns interconnected by the service.

Evidence of Agglomeration Formation and Development Impacts

With the construction of the line we observe an increased intra-regional accessibility, where the cities form a band and each city pair is no more than 40 minutes away from each other, thus giving the opportunity of daily commuting. A number of recent studies have analysed the economic effects of better transport accessibility as a result of high speed rails and concluded that there is a tendency of 0.25% growth in GDP for any 1% increase in market access. The existence of the HSR has indeed confirmed the results of these studies and transformed the region by boosting its economic growth and allowing for agglomeration formation (Figure 1).

Figure 1

The most remarkable was the regional economic transformation of the two intermediate stations Montabaur and Limburg on the route. The two cities are located exactly between two major agglomerations - the Rhine-Main area and the Rhine-Ruhr conurbations – and each of them has become more reachable to the traditional employment center-cities Cologne, Frankfurt as well as Wiesbaden. Despite the proximity of the regions around Montabaur and Limburg to large metropolitan areas, until the opening of HSR in 2002, they have preserved their rural character, with high quality of life and affordable land and rent prices. Several months after the beginning of the train services the regions started growing in migration attractiveness due to the lower prices of living there and the lower costs of commuting to the megalopolis cities.

Since Frankfurt is the main employment market in the region and an important hub on the road, which has a better connection and more frequent services especially during rush hours, it attracts the majority of commuters from Montabaur, Limburg and the surroundings. I should mention here that 80% of daily commuters from Limburg and about 60% of commuters from Montabaur travel to Frankfurt using the ICE line. Also a significant number of people chose to reallocate to the smaller towns from the neighboring large agglomerations, which strengthens the recent trend of people moving from the core metropolitan areas to the periphery, seeking higher quality and lower land prices and at the same time having the advantages of shorter and cheaper commuting to their work places.

The impact of the HSR on Montabaur, Limberg and the surrounding regions has been indeed positive. The population gains through the migration of new residents are tremendously important and beneficial, having in mind the demographic problems which Germany, similar to the rest of Europe, is facing nowadays.

Since the line is relatively new, functioning for less than 10 years, there is still no economic boom observed in the regions connected by it. However, the significance of the urbanization tendencies, the residential migration and the increase in the real estate prices as a result of it, give positive prospects and make us optimistic about the future development of the cities.

Is the Game Worth the Candle?

by Nurgul Tilenbaeva

Is the game worth the candle? This is a “number one” question in the minds of economists, politicians, and the general public in Kyrgyzstan with regards to the new railway project “China – Kyrgyzstan – Uzbekistan”. As the name suggests, this new transport line initiated by the respective governments of three countries intends to connect China to Central Asian region, namely Kyrgyzstan and Uzbekistan (see Graph 1). Far from being it, the plan is to subsequently expand the line to connect China to Europe through Central Asia, Iran, and Turkey, thus the project promises to grow into a large-scale enterprise involving more than 10 countries under its umbrella. The role of the Kyrgyz Republic in this case is the role of the transit country for Chinese goods, which are to be transported along the new railway line. With the estimated cost of about 2 billion USD this project risks being too expensive and even loss-making for Kyrgyzstan. Is the risk worth taking?

The Route of the Intended Railway Line “China –  Kyrgyzstan – Uzbekistan”  

According to estimations it will take twelve years of railway operation for the line to become profitable, and it promises annual revenues of around 200 million USD for the Kyrgyz economy. Because of a significant reduction in transportation costs (the new railway line is 268 km long in the Kyrgyz segment as compared to the existing 900 km connection between China and the rest of Central Asia) there are benefits to Kyrgyzstan arising from increased trade flows and boosted cooperation with China. Moreover, the railway line will go through Naryn and Jalalabad oblasts of Kyrgyzstan, which represent the least developed regions of the country. And, as the economic theory suggests (namely, the New Economic Geography model of Krugman) building a road, or in this case a railway line that will subsequently decrease distance between cities, will have a large impact on the distribution of manufacturing production and lead to substantial agglomeration of economic activity in those regions. This will create a lot of new jobs in these underdeveloped parts of the country and attract more people to migrate there. Overall, the theory suggests that this will have huge positive welfare implications for the regions close to the railway line in the form of increased number of manufacturing varieties, higher wages, etc. So far, the railway project “China – Kyrgyzstan – Uzbekistan” sounds like a panacea for all woes solving a whole lot of problems and causing none. This is not particularly true, however.

In addition to expected positive effects of the project, there are negative ones as well. Because of the high cost of actually building the railway line, which was earlier mentioned to be around 2 billion USD the natural question of financing the project arises. This is where most of the problems come into picture. Up to now it has not been decided yet as to how Kyrgyzstan is planning to finance its segment of the railway line. However, there are two options frequently suggested by policy-makers. The first alternative would be to get a long-term, low interest rate loan from China and finance the line from these resources. Then when Kyrgyzstan starts enjoying the benefits of the railway line, it will start repaying the loan from this money. This alternative is not reliable and risky in a sense that it does not provide any guarantees for being able to repay the loan (it only assumes that the country will get expected positive revenues from the railway line operation). The second option in minds of Kyrgyz policy-makers is to exchange mineral resources for the services provided by the Chinese. Under this alternative, three minefields of the Kyrgyz Republic (Jetim-Too iron ore deposit, Sandyk aluminum deposit, and Terek-Say gold deposits) will be given away to China. This last option is even worse, since the socio-political situation in Kyrgyzstan is very unstable, and the idea of giving away ore deposits to China will be perceived by the general public as “selling the Kyrgyz lands” to a neighboring country. With two revolutions in the past ten years, this could easily trigger a social outbreak, which could lead to very negative consequences. Thus, Kyrgyzstan is ended up having two bad financing alternatives, and it will have to choose the lesser of two evils. In addition to all this, it has been reported that the local population of Naryn and Jalalabad oblasts is acting against the project, mostly due to ecological reasons. Moreover, the inhabitants of these regions as well as some experts claim that the value of deposits potentially offered to China is measured in trillions of USD, while the cost of the project is only 2 billion USD. In addition to all this, the great benefits of anticipated agglomeration in Naryn and Jalalabad may not come true because for the policy to have an effect it must reach a critical mass, and it might not happen in this case…

So, coming back to the question raised at the beginning: Is the game worth the candle? It is very difficult to provide a definite answer to this question and it is also probably too early to do that. However, given good policies the railway project “China – Kyrgyzstan – Uzbekistan” has a potential to become a great investment project increasing the welfare of Kyrgyz citizens.