Agricultural or urban-industrial roads Selection process under the competition system for public funds

Abstract

The purpose of this paper is to analyze the efficiency in investing public funds under the assumption of tight supply of fiscal funds and under strong competitive regime for resources for investments in infrastructure and in roads, in particular. The comparison involves two types of roads: the ones which are urban-industrial and the others which are built to allow the transportation of exportable commodities to the ports. The purpose of the government’s decision is based on the ability of the roads to generate development along the regions they provide transportation services, and also to generate taxes and economic development, income and welfare for the future. There were compared two main roads in the state of Bahia, which are urban-industrial roads, with three other roads which are mainly for the transportation of agricultural products for exports. The methodology used is DEA, which is Efficiency Frontier of Production with a data asset of a great number of variables to define and measure the efficiency of the two alternatives, either the roads are the ones that generate development along their territories (the urban-industrial ones) or the ones that are only used for the transportation of agricultural products to the ports. The urban-industrial roads are far more efficient in terms of allocating government funds, because of generating of incomes and development along the territories served by the roads, while the roads that serve only to the agricultural frontiers have very small social returns in terms of public investments. So under this difficult situation rural roads will receive less priority in terms of investments in the future, although agriculture is very important for Brazil.