Transport policy, rail freight sector and market structure: The economic effects in Brazil

• Published in: Transportation research. Part A, Policy and practice Policy and practice, 2020-05, Vol.135, p.1-23
• Main Authors: Betarelli, Admir Antonio, Domingues, Edson Paulo, Hewings, Geoffrey John Dennis
• Format: Article
• Language: English
• Subjects: CGE model; Imperfect competition; Rail freight transport; Tariff policy
• ISSN: 0965-8564; 1879-2375
• DOI: 10.1016/j.tra.2020.02.018

•We examine the economic effects of the first tariff revision in the Brazilian rail freight sector.•A dynamic recursive CGE framework with forms of market imperfection is applied.•Costs and benefits of the policy were tested in the non-competitive and quasi-competitive regime.•The economy, foreign trade and the production chains in rail-intensive and export sectors were expanded.•Output, investments and expected rate of return in the rail freight sector were harmed. After fifteen years of railway concessions in Brazil, the rail freight sector became responsible for over 26% of the total transported volume in the country, an increase of 20% during this period. This Brazilian experience led a recovery in productivity and investment levels, with an improvement in service quality and modernization of the sector. Nevertheless, the rail price control mechanisms were almost unrestricted, allowing the concessionaires keep prices at very high levels. Just in 2012, it was held the first revision of price cap regulation of the sector. In this paper, we analyze the long-turn economic impacts of the rail freight sector tariff review policy in Brazil through the use of a dynamic general equilibrium model. The model incorporates some forms of market imperfections within its theoretical structure. Regardless the assumptions attributed to productive system, the main findings suggest that tariff policies promote positive effects on GDP growth, exports, and investments, as well as on other sectors, such as those most intensive in freight railways. However, the projections seem to confirm an onus on rail freight sector, with fall on its supply, return rate and private investment.