Transportation economics is a subdivision of economics where allocation of resources within the transportation sector is administered and it is believed to have strong linkages with civil engineering. In transportation economics, concepts and methods relating to economy is applied to the transportation system and infrastructure which includes cost-benefit analysis, cost-effectiveness analysis, and redistributive and other economic effects of transportation investment, pricing, regulation, cost allocation as well as other related public policies.

This particular branch of economics differ from some other branches of economics as the perfect economy does not hold due to the reason that human capital and goods flow at a certain rate. From an economic view in the transportation sector, demand can be measured in numbers of journeys made or in total distance travelled across all journeys. The effect of increases in supply (capacity) is of particular interest in transport economics, as the potential environmental consequences are significant. This phenomenon is known as induced demand where after supply increases, more of a good is consumed. For example, advanced ticket purchase is often induced by lower fares, and the number of tickets sold would increase.

This is entirely consistent with the economic theory of supply and demand; however, this idea has become important in the debate over the expansion of transportation systems, and is often used as an argument against widening roads, such as major commuter roads. The networks themselves may or may not be competitive. A single trip (which is the final good from the point-of-view of the consumer), may require bundling the services provided by several firms, agencies and modes.

Although transport systems follow the same supply and demand theory such as other industries, the complications of network effects and choices between non-similar goods (for example; the car and bus travel) estimation of the demand for transportation facilities proved to be difficult.

Transportation economics is an important part of economics that must be reviewed in detail. Its roles and challenges are ever changing and developing. As such, emerging roles and challenges influences the allocation of resources in transportation sector.

Current Trends and Status In Malaysia


Maritime industry in Malaysia is still considered at the early stage of growth and development. This is because Malaysian shipping industry is closely linked to national policy which emphasizes on greater self-sufficiency in shipping services. It is aimed to reduce the outflow of freight payment to non-national shipping lines. Over the years, Malaysian government has geared various of measures and initiatives on developing the national merchant fleet to enable the carriage of more national cargo on national-flagged ships. As a result of the government's efforts, Malaysian shipping industry has grown gradually.

In 1968, government has established the Malaysia International Shipping Corporation (MISC) and it has marked the entry of Malaysian shipping industry into international shipping. Even now, MISC remains the owner and operator of the largest fleet of Malaysian registered containership with 27 vessels at the moment and is ranked at 17th for the world's top 20 containership owner-operator league based on Clarkson Containership Register. Although there are other shipping companies involved in international trade such as Global Carriers and Malaysian Merchant Marine Berhad, Malaysian merchant fleet is still very small by global standard and currently carries less than 20 percent of Malaysian cargo.

Rail transport

There is one main railway operator throughout Peninsular Malaysia which is known as KTMB or the Keretapi Tanah Melayu Berhad, ranging from north (reaching Thailand) to south (Singapore). Suburban railway service or also known as KTM Komuter, serve customer outside Kuala Lumpur and Petaling Jaya, with its comfortable and high speed service. Other than that, STAR and Putra Light Rail Transit or also LRT service also contribute to the efficient, comfortable and congestion-free rail transport in KL. Non-stop service, KLIA Ekspres is also available for route from KLIA to KL Sentral.

However the development of rail transport in East Malaysia (Sabah and Sarawak)are lacking. In fact there is only one rail service, which connects Kota Kinabalu to Tenom in Sabah, and none in Sarawak. This is due to the mountainous and thick forest that covered most part of Sabah and Sarawak.

For the past few years, major project has been undertaken to upgrade railway infrastructure such as track and bridge rehabilitation works, modernization of signal and communications systems, and double tracking project. New rail stations are in progress, and old stations are and will be refurbished. Completion of rail connection from Kempas to the Port of Tanjung Pelepas (PTP), Johor and from Kerteh to Kuantan Port, and Rawang to Ipoh has greatly encouraged the economy of the towns. Upgrading project for Tanjung Aru to Tenom railway is also accomplished.


There are 5 international airport in Malaysia, namely KLIA, Penang, Senai, Kuching and Kota Kinabalu; and 15 domestic airports situated all over Malaysia to caters the needs of the market. Malaysia Airline or MAS is Malaysia premium airline service that targets the International flight customers because it covers more than 100 destinations across 6 continents and although cost of the domestic flight is higher compare to the other flight than MAS, it provides comfort to the customer (Best Cabin Staff 2001-2004).

Air-Asia, established in year 2001 has induced a great challenge for the MAS, especially for the domestic flight. With the cheap air fare, Air-Asia though young, are able to show its stable growth in the aviation industry, to attract especially the budgeted travelers like students and backpackers, in Malaysia and to neighboring countries. Berjaya-Air has fills in the gap of the aviation market by providing service to destination with short airstrips, such as to island like Pangkor Island and Tioman Island., and occasionally to Singapore.

There is an increase of 9.9 million from 32.9 million in year 2000 to 42.8 million 2005, for the number of passengers handled at airport in Malaysia. In order to meet up with the increasing demand of passenger for the air traffic, the facilities were enhanced and upgraded, for example Miri and Sibu airport in East Malaysia; in Alor Setar and Kota Bharu in Peninsular Malaysia. More airports were built, for example in Limbang and Bintulu. These steps were taken also in line with the government's will to encourage the development of the rural area.

In 9th Malaysia Plan (2006-2010), upgrading works that has been planned for Kuching, Kota Kinabalu, Labuan and Kuala Terengganu airport has been accomplished, and are expected to help generate greater economy for Malaysia aviation industry.


A well-developed infrastructure network, particularly road and highway is an essential pre-condition for economic development of a country. The transport industry in Malaysia is heavily relied on the road transportation subsector. Statistic of fuel demand in 2002 showed 86 percent of the total transport fuel demand came from road transportation. Malaysian government has allocated around 20 percent of development expenditure to transport infrastructure. In 2005, government has developed totaling of 61,000 km of road infrastructure.

In order to encourage the private sector to be involved in the development of road and highway project, the government had adopted a new approached through privatization. Malaysia is also a producer of complete motor cars and motor cycles. Malaysian's cars manufacturers such as Perusahaan Automobile Nasional (Proton) and Perusahaan Otomobil Kedua (Perodua) have penetrated over 40 markets worldwide. The Malaysian auto market is dominated by Malaysia's national cars, Proton and Perodua accounted for 90 percent of vehicles sold annually.

In year 2000, Proton and Perodua had 71.4 percent and 84.7 percent of capacity utilization respectively. According to Malaysia Automotive Association (MAA), Total Industry Production in year-to-date of March 2008 had increased 44.1 percent over the same period last year and Total Industry Volume has showed 24.6 percent of sales improvement compare to the same period last year. MAA forecasted that the production and sales may increase up to 4.7 percent by the end of the year if such trend continues.


Transportation is an economic factor of production of goods and services. It provides market accessibility by linking producers and consumers. An efficient transport system with modern infrastructures favors many economic changes, most of them positive. Thus, economic growth and development are inherently tied to transportation. Transportation is considered to be one of the most important infrastructure components influencing production.

Economic development occurs when the income level and productive output of an area increase. The benefits of transportation improvements are related to the reduced costs associated with transportation. That is, if a transportation improvement is provided, the result should be reduced transportation costs to the area. Reduced transportation costs, then, should lead to greater productivity and increased economic growth.

Transportation economics plays an emerging role in enhancing mobility. Mobility is one of the most fundamental and important characteristics of economic activity as it satisfies the basic need of going from one location to the other, a need shared by passengers, freight and information. All economies do not share the same level of mobility as most are in a different stage in the transition. Economies that possess greater mobility are often those with better opportunities to develop than those suffering from scarce mobility. Reduced mobility impedes development while greater mobility is a catalyst for development. Mobility is thus a reliable indicator of development. Providing this mobility is an industry that offers services to its customers, employs people and pays wages, invests capital and generates income.

One of the important and clear emerging roles is in building and strengthening a national or regional economy. At the macroeconomic level (the importance of transportation for a whole economy), transportation and the mobility it confers are linked to a level of output, employment and income within a national economy. In many developed countries, transportation accounts between 6% and 12% of the GDP.

In the United States, for example, about 17% and 18% of Gross National Product (GNP) is associated with transportation, in which 11% of this figure is accounted for passenger or by movement of people, and other 6% is by movement of freight. The passenger or movement by people is associated with private automobile regarding its purchase, operation, and maintenance, while the freight is associated with taxi, school bus, transit bus, and rail.

Transport also has an emerging role in job creation and its derived economic activities. Accordingly, a large number of direct (freighters, managers, shippers) and indirect (insurance, packaging, handling, travel agencies, transit operators) employment are associated with transport. Consumers take economic decisions on products, markets, costs, location, prices which are themselves based on transport services, their availability, costs and capacity.

Transportation has an emerging role in creating economies of scale. Effective and efficient transportation system offers cost, time and reliability advantages that permits goods to be transported further. This facilitates mass production through economies of scale because more markets can be accessed. It also improves the allocation process as it widens the number of opportunities for suppliers and buyers. Thus, the more efficient transportation becomes, the larger the markets that can be serviced and the larger the scale of production.

Besides that, transportation has an emerging role in contributing to a nation's military strength. By strengthening the economy, transportation will places the nation in a better position to weather adversity and produce materials necessary to sustain its economy and military strength. For example, if there war in a nation, the transportation system will be the most useful and important element to be used to move troops.

Transportation economics has an emerging role in geographic specialization. This is because improvements in transportation and communication allows each geographic area to produce their best product and then trade its product with other. A speedy mode of transportation such as by air also helps perishable foods to be distributed to wider market areas. Besides that, it is convenient for the workers to go to their job sites with the good transportation condition. Through geographic specialization supported by efficient transportation, the economic productivity is promoted. This process is known in economic theory as comparative advantages.

Transportation system has emerging role for the people in the nation. It allows the citizens to live in a calm and convenient life. It is important for the economy and freedom of any nation to have the ability to move goods and people. With good roads, rail, air, and information technology infrastructure will give us the desire to live where we want to live, enjoy quality food and goods produced far from our homes, and easily and safely travel from work or relaxation. By giving the good transportation system to the citizens, it also helps in improve the nation's economic growth as citizen enjoy doing what they are good in.

While some regions benefit from the development of transport systems, others are often marginalized by a set of conditions in which inadequate transportation play a role. Transport by itself is not a sufficient condition for development, however the lack of transport infrastructures can been seen as a constraining factor on development. Investment in transport infrastructures is thus seen as a tool of regional development, particularly in developing countries and for the road sector. The relationship between transportation and economic development is thus difficult to formally establish and has been debated for many years.

When resources are scarce, is it better to develop the rail network, highway network than in making decisions regarding spending on transportation improvements. Some believe that there is a serious need for improved road transportation service in developing countries, and improving the efficiency of road transport would have a beneficial impact on industrial and agricultural production and distribution.

Transportation improvements affect both economic development and productivity. “Pure” economic development effects are usually regional in nature and result from improved access to labor pools or to larger markets (NCHRP, 1998). While considering the economic development of different regions of a country, transportation infrastructure and the overall system may play a significant role in removing regional economic disparities.



With the increased use of transport systems, it has become increasingly common for parts of the network to be used above design capacity. Congestion is the outcome of such a situation with its associated costs, delays and waste of energy. It is considered a negative externality by economists which happen to be one of the challenges the transportation economy faced today.

A 2005 American study stated that there are seven root causes of congestion which are bottlenecks (40%), traffic incidents (25%), bad weather (15%), work zones (10%), poor signal timing (5%), and special events or other (5%).

Number of vehicles in Malaysia has increased day by day. According to road transport department of Malaysia in New Registered Motor Vehicles by Type Statistic in 1996-2006, total of new vehicle registered in 1996 has grown from 750,511 to 1,020,108 in 2005. The increment of vehicles has grown up to 41 percent while 19 percent for road and this cause a problem on road traffic. The growth of private vehicles in most urban centre, this indicates an increase affluence and higher standard of living as well as high level of trading and commercial activities.

Although planners take into account future traffic growth when planning new roads (this often being an apparently reasonable justification for new roads in itself - that traffic growth will mean more road capacity is required), this traffic growth is calculated from increases in car ownership and economic activity, and does not take into account traffic induced by the presence of the new road (i.e. it is assumed that traffic will grow, regardless of whether a road is built or not).

Within the transport economics community, congestion pricing is considered to be an appropriate mechanism to deal with this problem. Congestion pricing or congestion charges is a system of surcharging users of a transport network in periods of peak demand to reduce traffic congestion such as road pricing, and higher peak charges for utilities, public transport and slots in canals and airports. This variable pricing strategy regulates demand, making it possible to manage congestion without increasing supply. Implementation has reduced congestion in urban areas, but also sparked criticism and public discontent. Critics maintain that congestion pricing is not equitable, places an economic burden on neighboring communities, has a negative effect on retail businesses and on economic activity in general, and is just another tax.

Liquid fossil fuels

While transportation has a disproportionate dependence upon liquid fossil fuels, future evolution of alternative fuel sources must offer acceptable performance in terms of energy density, portability, safety and environmental friendliness. It is anticipated that as a result, automotive transportation will continue to have significant dependence upon liquid fossil fuels.

Recently, there's a major struck on the airline industry especially for the Malaysia Airline. On the 18 August 2008, the news of Malaysia Airlines' profit plunged 65 percent in the second quarter from a year ago shocked the world aviation industry. This phenomenon is due greatly to the drastic raise in fuel price, in which the oil price reached $150 a barrel in July. To cope with this situation, MAS toke steps to cut capacity on routes with weak demand, trim costs and hedge its fuel requirement. It is aware that the industry outlook was grim despite the news of $114 a barrel of oil is release.

Highway Trust Fund

The transportation grant programs funded by the Highway Trust Fund—including the nation's highway and transit programs—have evolved slowly since the Trust Fund was created in 1956. While the program was created for the purpose of constructing the interstate highway system, and the interstate is complete, the basic construct of the program, in terms of its financing and delivery mechanisms, has not changed.

While the trust funds were originally based on the concept of having users pay for the transportation systems, this concept is beginning to fray. Revenues to the Highway Trust Fund, which funds the majority of highway and surface transportation safety spending and a large portion of transit spending, are drawn from fuel taxes and user fees. The purchasing power of these revenues is declining and future fuel tax revenues will be further eroded by the increasing fuel efficiency of vehicles.

Aviation Trust Fund revenues are also declining, in part because of lower cost airline tickets and other factors. The Federal Aviation Administration will face significant challenges in supporting its four major accounts, which include operations, facilities and equipment, airport improvement program, and research, engineering, and development. Many experts question whether the current financing scheme for transportation is ultimately sustainable..

Energy reduction demands

There is a need for significant advances in energy efficiency and environmental responsibility such as Compressed Natural Gas. This must be achieved through new engine technologies, where clean diesels and a high performance, down-sized direct injection, gasoline engines have witnessed very health competition.

Auto-makers around the world have also invested heavily in hydrogen fuel vehicles and have anticipated breakthroughs in hydrogen production efficiency (from non-carbon or fossil fuels). This too offers tremendous potential for the future. Finally, the explosion of electronics content in vehicles will also lead to more intelligence in the vehicles and roadway systems and this in turn will contribute significantly to energy efficient mobility.


The use of transport modes and infrastructure is never entirely safe. Every motorized vehicle contains an element of danger and nuisance. Due to human errors and various forms of physical failures (mechanical or infrastructural) injuries, damages and even death occur. Accidents tend to be proportional to the intensity of use of transport infrastructures which means the more traffic the higher the probability for an accident to occur.

They have important socioeconomic impacts including healthcare, insurance, damage to property and the loss of life. The respective level of safety depends on the mode of transport and the speed at which an accident occurs. No mode is completely safe but the road remains the most dangerous medium for transportation, accounting for 90% of all transport accidents on average (Statistics for OECD countries). China has one of the highest car accident death rates in the world, with more than 110,000 fatalities per year (300 per day), a factor mainly due to recent growth in vehicle ownership.


Process of globalization had given drastic impact on Malaysian maritime sector and local ports. According to statistic, it has been estimated that 90 percent of Malaysian trade partners are using ship as transportation. Hence, Malaysian economy and trade status greatly depend on the ports. As a result, few ports in Malaysian has been internationally recognized as efficient and competitive ports. However, there are still many improvements need to be done to compete in the international trade.

The phenomenon of globalization has encouraged the development of global transportation network and logistic chains. As a result, Malaysia is not only competing with neighboring ASEAN countries but also with other Asian countries and foreign traders from worldwide. The era of ports structure cost based on customers had ended. Now, in high technology era, preparation of environment is more on supply-driven, such as infrastructures, intelligence and customer service.

Environmental consequences

The emission of pollutants related to transport activities has a wide range of environmental consequences that have to be assumed by the society provides a comprehensive overview about transport and the environment), more specifically on four elements: For example, manufacturing or transportation causes air pollution imposing costs on others when making use of public air.

Atmospheric emissions from pollutants produced transportation, especially by the internal combustion engine, are associated with air pollution, acid rain and the potential for global warming. Some pollutants (NOx, CO, O3, VOC, etc.) can produce respiratory troubles and aggravate cardiovascular illnesses. In urban regions, about 50% of all air pollution emanates from automobile traffic.

A major irritant, noise can impact on human health and most often human welfare. Noise can be manifested in three levels depending on emissions intensity; psychological disturbances (perturbations, displeasure), functional disturbances (sleep disorders, loss of work productivity, speech interference) or physiological disturbances (health issues such as fatigue, and hearing damage). Noise and vibration associated with trains, trucks, and planes in the vicinity of airports are major irritants. Accidental and nominal runoff of pollutants from transport such as oil spills, are sources of contamination for both surface water and groundwater.

Increased demand for public transportation

The government focuses on promoting the operational efficiency of the rail service and that rail service should become the major mode of freight transportation. It is expected that the upgrading of rail service will increase access to rural areas with a shorter period and to suppert agriculture development and tourism industry. In a nutshell, to cope with the fervent growth of economic activities in Malaysia, development of rail service should not be viewed as an option anymore, but as a great need that require much more effort whether from the government or the private sectors. With the recent fuel price hike, many have adopted fuel-saving methods such as car-pooling and taking public transportations to ease the burden. However, this has caused an increased demand for busses and railway transport.

Planners in developing countries need guidance to aid in their decisions to improve existing transportation and build new infrastructure. Researcher have little actual evidence linking transportation improvements to economic development. It generally is not known, for example, whether investments in transportation infrastructure are more productive than investments in other sectors of an economy. Nor is it known whether capital expenditures on one mode of transportation are more productive than those spent on another mode.


In addition to providing benefits to their users, transport networks impose both positive and negative externalities on non-users. The consideration of these externalities, particularly the negative ones, is a part of transport economics. An externality occurs when a transaction causes costs or benefits to third party, often, although not necessarily, from the use of a public good.

The transport sector is an important component of the economy impacting on development and the welfare of populations. When transport systems are efficient, they provide economic and social opportunities and benefits that impact throughout the economy. When transport systems are deficient, they can have an economic cost in terms of reduced or missed opportunities. Transport also carries an important social and environmental load, which cannot be neglected.

Future transportation systems and solutions must therefore demonstrate sustainability while continuing to offer a variety of choices to suit the different needs of society. This demand cannot be managed unless one addresses the entire chain of mobility, starting from the nature of the demand, viability of infrastructure, dependability and economies of energy sources, the environmental impact of different approaches, leading to transportation technologies and solutions. Therefore, the role of urban planning, proliferation of productivity tools and technological modifiers of demand must play an equal role together with vehicular technologies and solutions.


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  • E. L. Glaeser et al. Why do the poor live in cities? The role of public ransportation. Journal of Urban Economics 63. (2008) 1-24
  • Improving Infrastructure, Utilities and Urban Transportation. Ninth Malaysia Plan 2006-2010. Chapter 18: 375
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