Highway traffic in Britain: The effect of road capacity changes

This paper provides a theoretical framework to study the relationship between expanded road capacity, traffic volumes and increased economic activity. We build on Anas (2024) to show that increased volumes do not necessarily lead to congestion if adjustments in economic factors, such as population or employment, are not substantial. We test our predictions obtaining key estimates with data from Great Britain between 2001 and 2020 and adopting a shift-share instrumental variable approach. We find that the elasticity of vehicle kilometres travelled to road capacity improvements is positive and statistically different from 1 across different specifications, while the elasticity of population and employment is positive but smaller than 1. In our framework this implies that the cost of driving does not increase above initial levels, resulting in higher consumer surplus through changes in travel demand and time savings.