Transport as a Factor of Production

Contemporary trends have underlined that economic development has become less dependent on relations with the environment (resources) and more dependent on relations across space. While resources remain the foundation of economic activities, the modification of the economy has been linked with higher levels of material flows of all kinds. Concomitantly, resources, capital and even labor have shown increasing levels of mobility. This is particularly the case for multinational firms that can benefit from transport improvements in two significant markets which is commodity market and labor market.

Commodity market is improvement in the efficiency with which firms have access to raw materials and parts as well as to their respective customers. Thus, transportation expands opportunities to acquire and sell a variety of commodities necessary for industrial and manufacturing systems labor market. Improvement in the access to labor and a reduction in access costs, mainly by improved commuting (local scale) or the use of lower cost labor (global scale).

A common misunderstanding  in assessing the importance and impact of transportation on the economy is to focus only on transportation costs, which tend to be relatively low (5 to 10% of the value of a good). Transportation is an economic factor of production of goods and services, implying that relatively small changes can have substantial impacts in on costs, locations and performance. An efficient transport system with modern infrastructures favors many economic changes, most of them positive. It provides market accessibility by linking producers and consumers.

The major impacts of transport on economic processes can be categorized as Large scale production  an efficient transport system offering cost, time and reliability advantages permits goods to be transported over longer distances. This facilitates mass production through economies of scale because larger markets can be accessed. The second is Increased competition is when transport is efficient, the potential market for a given product (or service) increases, and so does competition. Globalization has clearly been associated with a competitive environment that spans the world. The third is increased land value is Land which is near or serviced by good transport services generally has greater value due to the utility it confers to many activities.

Transport also contributes to economic development through job creation and its derived economic activities. Accordingly, a large number of direct (freighters, managers, shippers) and indirect (insurance, finance, packaging, handling, travel agencies, transit operators) employment are associated with transport. Producers and consumers take economic decisions on products, markets, costs, location, prices which are themselves based on transport services, their availability, costs and capacity.