Marko Nokkala

4. Scenarios

4.1 Trend scenario

In this scenario, the continuation of current investment level is assumed, meaning that no additional investments in infrastructure take place. This would mean that the annual expenditure levels of today would be continued, in line with the current strategic plan of the Finnish National Road Authority (Linkama 2000). The level of FIM 4,4 billion has been planned for 2001-2015 period as a level of investment through Road Authority, which is allocated according to table 1.

Table 1. Allocation of Road Authority Funds in 2001-2015, FIM million/year. (Linkama 2000).

	Actual 1998 FIM million/year	2001-2015 FIM million/year
Operating costs	1200	1300
Maintenance costs	770	950
Main road investments	700	390
Other main road investments	45	60
Lahti road financing	10	100
Urban area investments	380	400
Other road investments	405	470
Traffic control	20	50
Planning	140	140
Land purchases	160	160
Administration and R&D	560	420
Total	4,4 billion	4,4 billion

As we can see from the table, the trend investment assumption is likely to reduce the 1998 level of main road investments, other main road investments and other road investments by FIM 230 million in Finland as a whole. However, in terms of how this reduction is dealt with, it will be assumed that for most part the reductions take part in the region 3, which is the Central and Northern part of Finland. Following from this, in this scenario the basic assumption is to redistribute the existing funds of FIM 920 million in three Finnish regions according to a revised expenditure plan, with emphasis on the regions 1 and 2, absorbing most of the trade flows between Finland and Russia.

The following assumption is made: Each of the three regions receives equal amount of funds in the beginning. This means FIM 380 million in the original setting. Cuttings in expenditure will reduce investments in region 3 by FIM 230 million, leaving the region with little investment expenditure. In other two regions, the expenditure remains at the original level, at FIM 380 million.
The results of this policy experiment show that no significant changes in terms of output or employment take place. However, the negative impact of reduced investment expenditure will hurt Region 3 and lead to considerable output reduction and increase in unemployment. These impacts are beyond this study.

4.2 Modest investment scenario

In this scenario, it is assumed that the promotion of infrastructure to support Finland-Russia trade will be the main tool of national transport policy and that additional investment will be directed to develop the current infrastructure. The increase in funding of infrastructure projects will increase by 50 per cent compared to the first scenario. In Finnish Marks this would mean an increase of FIM 235 in regions 1 and 2. In this and the following high growth scenario funds are directed both to transport and construction branches of the regional economies.

The results show that in the region 1, which is the growth region in Finland, the output will grow by 0,05 per cent. In region 2, the increase in output is 0,08 per cent. Full results from the experiments are reported in table 2.
Table 2. Output effects, modest investment scenario, Regions 1 and 2.

Sector	Region 2		Region 1
	Output change, FIM million	Output change, %	Output change, FIM million	Output change, %
Agriculture and forestry; fishing and hunting	0,390825	0,0036730	0,682465	0,0035179
Mining and quarrying; Manufacturing	16,27007	0,0085099	16,20479	0,0096181
Electricity, gas and water supply	2,020993	0,0140160	1,786815	0,0134462
Construction	122,6928	0,3750244	124,0191	0,6382437
Trade; Hotels and restaurants	14,29106	0,0198627	6,400829	0,0264265
Transport, storage and communication	135,6169	0,2804960	127,155	0,5234945
Business services	4,760465	0,0135183	1,579741	0,0187174
Other services	6,587185	0,0038515	3,90643	0,0043339
Total	302,6304	0,0525849	281,7351	0,076623

As the results show, modest increase in the investments in infrastructure does not create significant increase in the regional output as a whole, although transport and construction branches benefit from the investments more than other branches. In the final scenario, the investment expenditure is increased dramatically to see the effects of such large investment schemes.

4.3 Large investment scenario

As in the modest investment scenario, it is assumed that the promotion of infrastructure to support Finland-Russia trade will be the main tool of national transport policy and that additional investment will be directed to develop the current infrastructure. The increase in funding of infrastructure projects will increase by FIM 1 billion in both regions compared to the first scenario, meaning a significant increase in the expenditure of the National Road Administration. This would mean an increase in expenditure to FIM 1380 in regions 1 and 2.

The results show that in the region 1, which is the growth region in Finland, the output will grow by 0,3 per cent. In region 2, the increase in output is 0,45 per cent. Results are reported in table3.
Table 3. Output and employment effects, large investment scenario, Region 2.

Sector	Region 2		Region 1
	Output change FIM million	Output change, %	Output change FIM million	Output change, %
Agriculture and forestry; fishing and hunting	4,067468	0,020967	2,321113	0,0218138
Mining and quarrying; Manufacturing	96,63191	0,057354	96,72396	0,0505907
Electricity, gas and water supply	10,54404	0,079347	11,89694	0,0825075
Construction	742,2463	3,819848	734,7443	2,245828
Trade; Hotels and restaurants	37,66391	0,155499	84,06536	0,1168398
Transport, storage and communication	731,7863	3,012749	780,6771	1,6146712
Business services	9,264032	0,109764	27,85166	0,0790907
Other services	22,67865	0,02516	38,32211	0,0224066
Total	1654,883	0,450076	1776,603	0,3087015

As the results show, there is a substantial increase in the output levels in both regions, compared to the previous scenario. The increase in total output, generated by the FIM 690 increase in transport investment, is 1,7 billion in Region 1 and 1,6 billion in Region 2.

The results indicate that although this type of an investment decision is a major strategic decision from the Government of Finland, the economic impact of such investment remains moderate. This is the direct impact of the pure investment decision, but it bears a broader message to decision-makers: although increasing investments means that the expenditure is increased, it can generate revenues in a significant way, taking into consideration the prospects outlined in chapter 2.