The objective of this paper is threefold. First, the paper presents a regionally disaggregated CGE model, in which “a region” is defined as a sub-area or a zone within a country or a particular area and the spatial dimension of the economy is explicitly included. In such a spatial CGE model, the estimation of interzonal trade flows has a critically important role: with the presence of shipping cost, suppliers would impose the cost on their sales prices for covering that cost, which changes the product shipping pattern for each type of commodity or service and thereby affects the efficiency of regional economies. Second, the paper proposes a new approach that links travel delay (attributable to congestion) and business productivity. Transportation investment changes the relative economic advantage that each region has through the changes in accessibility to material/service markets and labor markets. To estimate the rate return on transportation investment to reduce congestion, it is necessary to estimate how the specialized transportation policy to reduce congestion has economic impacts on regional economies. Finally, the paper explores the values of economic impacts measured by an application of the model to Tokai ring road project, which is an on-going project to build an expressway of about 160km in length connecting annularly many cities in Tokai region.
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