MEASURING REGIONAL ECONOMIC IMPACT OF CIPULARANG TOLL ROAD INVESTMENTS: USING AN INPUT-OUTPUT MODEL (CASE STUDY: BANDUNG DISTRICT)

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1 International Journal of Civil Engineering and Technology (IJCIET) Volume 8, Issue 10, October 2017, pp , Article ID: IJCIET_08_10_084 Available online at ISSN Print: and ISSN Online: IAEME Publication Scopus Indexed MEASURING REGIONAL ECONOMIC IMPACT OF CIPULARANG TOLL ROAD INVESTMENTS: USING AN INPUT-OUTPUT MODEL (CASE STUDY: BANDUNG DISTRICT) R. Anas Doctoral student, Civil Engineering Department, Transportation Engineering, Bandung Institute of Technology, Indonesia O. Z. Tamin Professor of Civil and Environmental Engineering Faculty, Transportation Engineering, Bandung Institute of Technology, Indonesia R. Z. Tamin Professor of Civil and Environmental Engineering Faculty, Construction management, Bandung Institute of Technology, Indonesia S. S. Wibowo Associate Professor of Civil and Environmental Engineering Faculty, Transportation Engineering, Bandung Institute of Technology, Indonesia ABSTRACT Transportation sector is an integral part of a region economics, freight transportation in Indonesia still dominated by road transport, therefore improvements in road network performance by expanding its capacity should decrease the costs of freight transportation and generate a better performance of production sector. From the regional economic point of view, representing a competitive advantage of locations (accessibility improvement), reduce logistic cost and expected to develop the regional economy. This paper aims to estimate the regional economic impact of the region connected (case study: Bandung District) by the new transport infrastructure investment (Cipularang Toll road, in West Java) using the input-output simulation model. Keywords: toll road investment, accessibility, freight transportation, key sector, regional economic editor@iaeme.com

2 R. Anas, O. Z. Tamin, R. Z. Tamin and S. S. Wibowo Cite this Article: R. Anas, O. Z. Tamin, R. Z. Tamin and S. S. Wibowo, Measuring regional EconomIC Impact of Cipularang Toll road Investments:Using an Input- Output Model (Case study: Bandung District), International Journal of Civil Engineering and Technology, 8(10), 2017, pp INTRODUCTION Transportation is an activity that is derived demand, where the need for transportation cannot be separated from the development of the region, activity patterns, population and economic growth. Transportation should be able to provide benefits as a function of transport to provide accessibility for the community (Provide Access to People) also serves as a logistic (taking raw material; manufacture to consumer). A high cost of production is often having correlation with a high cost of logistic in Indonesia and in turn weakened the competitiveness of said production sector. Logistic in Indonesia still dominated by road transport, therefore improvements in road network performance by expanding its capacity should increase the accessibility, decrease the freight transportation costs and generate a better performance of production sector. Cipularang Toll road is an extended towards the outer ring road of Cikampek, Jakarta, and an alternative short road from Jakarta to Bandung and vice versa. Cipularang Toll construction along 58 km has cost trillion rupiahs. The operation if the toll that connects Jakarta Bandung makes a short latency time thus increasing significantly the number of trips to and from Bandung district. Related to toll road investment, besides direct user impact such as reducing the travel time, decrease the vehicle operating cost, investment in transportation infrastructure also can provide broader economic benefit to the regional economic (indirect economic impact). From the diagram below, it can be seen that the economic benefits can be felt direct or indirect effect, it should be a stimulus for the economy of the region to develop. Figure 1 Economic Impact of Implementation of New Toll Roads Regional Economic impacts from a new Cipularang toll road infrastructure are explored by an Input-Output model in this paper. This approach can be employed to assess the economic benefit of a specific toll project on the regional economic editor@iaeme.com

3 Measuring regional EconomIC Impact of Cipularang Toll road Investments: Using an Input-Output Model (Case study: Bandung District) 2. LOCATION INDICATOR AND ACCESSIBILITY MEASURES Since the theory of accessibility was developed in the early 1950s, there has been a continuous evolution of the theoretical foundations and accessibility indicators. Each accessibility indicator highlights different effects of transport infrastructure investments. Therefore, each one provides a different point of view for the analysis of the spatial distribution of these effects. This indicator calculates a weighted, by destination population, average travel time between each node and a choice of region s centroids, according to the following formulation (Gutie rrez et al., 1996): (1) Where, Li = the accessibility (location) of node i Iij = travel time (minimal route) between node i and the centroid of region j (in minutes) Pj = region s j population (activity center of the study area) Figure 2 Cipularang Toll road and regions connected From Figure 2 above, the construction of the new toll road is located and provides new connectivity to the following region: Purwakarta, Cimahi, Bandung city and Bandung district. The accessibility are interpreted from the locational, travel time by the minimal route and the mass of each destination is used as a weight in order to value the importance of the minimal travel time routes. Its main limitations stem from the fact that it does not discriminate between far and nearby destinations, therefore their values depend heavily on the selected set of destinations. However, this limitation can be considered also as strength, if its results are used for the assessment of large scale projects aimed at improving strategic links and large scale projects (Gutie rrez, 2001) editor@iaeme.com

4 R. Anas, O. Z. Tamin, R. Z. Tamin and S. S. Wibowo Region Purwakarta Cimahi Bandung City Table 1 Regional Accessibility Results Population 910, ,015 2,470,802 Accessibility Before Toll Operated After Toll Operated Bandung district 3,470, , Table 1 above compares, differences in accessibility value for each region between before and after Cipularang toll road operated. For Location accessibility value, the highest effect felt by the Bandung s district. Hence, the values of the accessibility indices included in Table 1, suggest that there was a reduction in accessibility differences between the regions. 3. REGIONAL ECONOMIC IMPACT TO BANDUNG DISTRICT (CASE STUDY) To understand the relevance of the measurement of transport infrastructure investment (Toll road) to the Bandung district, the study focus its analysis on: (1) Production sector (key sectors) (2) how an investment in an individual road infrastructure project can increase the output of each of the production sector (key sectors) of the region connected with the road infrastructure (Bandung district), and (3) how much reduction of the cost of transporting goods towards the marginal cost of the production sector. The increase in the production sector will affect other production sectors, which in this study will be analyzed using Input- Output Analysis method The use of input-output table serves as a basis for planning and macro-economic analysis, especially with regard to the production sector, the analysis of impacts, and the connections between sectors and economic projections (GDP). Input-Output (I-O) Table is a statistical description that describes the transaction between the production sectors as a whole in a given year (shows the connection between sectors). An Input-Output tables is present in the form of a matrix, where each row shows how the output of a sector achieving the intermediate demand and final demand, including inter-industry linkage effect analysis, the demand-driven model, the supply-driven model, and the Leontief price model, to investigate To get a brief picture of how an I-O tables are arranged, the example presented in Figure 3. It will describe how the I-O table for the economic system which consists of three production sectors. Figure 3 Cipularang Toll road and regions connected editor@iaeme.com

5 Measuring regional EconomIC Impact of Cipularang Toll road Investments: Using an Input-Output Model (Case study: Bandung District) From Figure 3, the I-O tables consists of 3 quadrants, each associated with intermediate demand, final demand, and primary inputs. Then, the supply and demand equation i sectors above can be used in the form of notation: + (2) Where: xij = the amount of output in sector i used as input in sector j Fi = Final demand towards output sector i Xi = total output of sector i Mi = total output i imported 4. RESULTS 4.1. Identifying key sectors Identification of the key sectors within an economy is an important analytical task, which can have significant and wide policy implications. These sectors are important as they could be considered as the ones creating demand for other segments of the economy and thus acting as leaders of economic growth. The results of the described methodology for backward and forward linkages are briefly presented in Table 2. Both weighted and unweighted power of dispersion and sensitivity of dispersion indices are presented. Table 2 Forward linkage, backward linkage, and Share to GDPof Bandung district s.no SECTOR Backward Linkage Forward Linkage Share to GDP (%) 1 Agriculture, forestry & fishery ,63 2 Mining ,61 3 Processing Industry ,66 4 Electricity, Gas & water ,04 5 Construction ,33 6 Trade ,24 7 Transportation & communication ,60 8 Finance, rental & services company ,53 9 Services ,36 Based on table 2 above, it can be seen that the key sector of Bandung district is only the Processing industry sector with a forward linkage value 2.38 and backward linkage value 1.19 and share to GDP 71,66 % Reduce of distrbution cost Reduction of freight transportation cost due to the operation of Cipularang toll road, collected from the sample of key sector of Bandung s district (Processing industry sector). Due to data collected, reduce in distribution cost of industrial sector in Bandung s district is % or 0.99% of production cost editor@iaeme.com

6 R. Anas, O. Z. Tamin, R. Z. Tamin and S. S. Wibowo Table 3 Reduce Distribution cost of Key Sector in Bandung s district Variable 1 Variable 2 Mean Variance Observations Pearson Correlation Hypothesized Mean Difference 0 df 90 t Stat P(T<=t) one-tail E-07 t Critical one-tail P(T<=t) two-tail E-07 t Critical two-tail Reduce of distribution cost savings which is + Rp. 595,964 (in million), on the other hand, indirect changes felt in production cost of industrial sector is % Regional economic impact Another conclusion is that Input-Output analysis should be used as the tool to estimate the economic benefit from infrastructure investments. One reason is that it shows regional economic output to increase as freight transport efficiency improves. In this study, toll road infrastructure investments will reduce the distribution cost which will lead to a decrease in production costs from key sectors of the Bandung district region and will affect other production sectors in the region. The hypothesis used, saving the production cost of the key sector will change the quadrant structure of the final demand, and the influence on other sectors will be analyzed using the input-output model Direct economic impact From data analysis, the reduction of freight transportation decreased about 18.4% due to the operation of Cipularang Toll Road, so it can be taken into account of the primary input structure in I-O Table, especially the sector of processing industry (key sector) in Bandung district. Table 4 Direct economic impact to the key sector (Processing Industry) s.no Primary Input Total Amount 1 Intermediate demand Rp. 36,185,684 2 Import Rp. - 3 Household Income Rp. 4,844,659 4 Profit Rp. 13,346,405 5 Dev Rp. 1,265,261 6 Indirect Tax Rp. 694,997 Primary Input Total Amount 7 Subsidies Rp. - 8 Adding Value Rp. 20,151,322 9 Total Input Rp. 56,337, editor@iaeme.com

7 Measuring regional EconomIC Impact of Cipularang Toll road Investments: Using an Input-Output Model (Case study: Bandung District) Direct economic impact to the key sector (industrial sector) output is as big as the freight transportation cost savings which is + Rp. 595,965 (in million) Economic Projection (Production-Inducing Effects) The results will describe how the effects of reduced freight transportation costs to the Processing industry sector output and other production sectors. If there are n sectors in the production sector, then there will be n 2 coefficients. All coefficients can be expressed in a matrix (matrix A), in the form of: An additional output from the production sector means that require additional input from itself, and from other production sectors. Additional input from each production sector will create a new additional output for all sectors. An analysis of the total output can be calculated as follows with round-by-round effect analysis (Nazara 2005). Indirect effect Direct effect! " (3) " " #! "! # $ " (4) $ " # " % $ " & ' " Total ouput sector 1 = x 1 +x x n Total ouput sector 2 = x 2 +x x n+1 Reduction of freight transportation cost due to the operation of Cipularang tollway, assumed as a change in final demand. Due to changes in the total demand, the total output of Bandung (GDP) overall increase of Rp. Rp. 835,463 million (16x iteration change in output) which is around 2.51% elasticity from the existing total Bandung District s GDP Household income With household income multipliers, one has some choice regarding what should logically be termed the initial effect of new final demand. With output multipliers, it was fairly clear that the initial effect of monetary value (Rp s) worth of final demand for sector j output is that sector j production must increase by one Rp. Impact of household income multiplier Processing industry sector in input-output simulation model can be calculated using equation (Daryanto, 2013): () * + (5) Where, Hj = household income vij = wage sector i xij = output sector i αij = Leontif s invers matric Based on of input-output model simulation of Bandung s district in 2008, wage and salary coefficient for Processing industry sector is 0,086, meaning that 8.6% of total output of processing industry sector is allocated for wage and salary. The increase in final demand s editor@iaeme.com

8 R. Anas, O. Z. Tamin, R. Z. Tamin and S. S. Wibowo quadrant caused by cost savings of goods transportation amounted to Rp. 51,250 (million), then household income will increase by Rp. 127,010 (million) Employment effect The processing industry sector in Bandung s district is able to absorb large number of labor. The number of large and medium industrial enterprises in Bandung Regency in 2008 was 877 entities, and on average each entity was able to employ 237 workers. Under the I-O framework, the employment multipliers for each sector can be calculated by estimating the relationships between the value of output of a sector and employment in that sector in physical terms. The government expects that increasing in production sector s total output should create more jobs along with its development. The employment multiplier formed as a result of the final demand can be calculated by the following equation. L=L (I - A d ) -1 F d (6) Where: L = labor requirement L = diagonal matrix of labor coefficients (I-A d ) -1 F d = output Employment multiplier value shows that if an increase in final demand of manufacturing sector amounted to Rp. 595,965 (million), will increase the employment sector of 5,982 workers and 21,311 workers to the entire production sector. 5. CONCLUSION Based on the results in the accessibility analysis, Bandung district has the biggest impact due to operation of Cipularang toll road. This paper aims to estimate the economic impact from cipularang toll road operated with Bandung s district as a case study. The Processing industry sector becomes the key sector of Bandung district s production sectors. The From empirical data of the key sector, the freight transportation cost reduce + 18% gained from the operated of Cipularang toll road. Contributions from the operation of the Cipularang toll road to the production sector (key sectors) and the Bandung district's economic, as follows (Based on I-O Table2008): As a direct economic impact, cost savings gained Rp. 595,965 (million) and increase the value added of Bandung district s processing industry sector by %. As an indirect economic impact, the estimation results show an increase in output of the key sector (processing industry sector) will increase output of other production sectors of Rp. 835,463 (million) and increasing about % of Bandung district s GDP. The result from simulation I-O table, household income will increase by Rp. 127,010 (million) and increase the employment sector of 5,982 workers and 21,311 workers to the entire production sector. REFERENCES [1] Aschauer, A.D. (1989). Is public expenditure productive?. Journal of Moneytary Economics. [2] Bandung Region Statistical Data, (2008), Badan Pusat Statistik Republik Indonesia (Statistics Indonesia), editor@iaeme.com

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