Impact of a Preliminary Feasibility Study on the accuracy of traffic forecasts in the case of Korea

Abstract

Abstract The financial crisis that beset the Republic of Korea in late 1997 had a tremendous impact on the nation’s economy. In an effort to resolve the fundamental causes of this crisis, one fiscal reform, executed with the goal of improving the efficacy of government investment, was the introduction of the Preliminary Feasibility Study (PFS). PFS was initiated to determine which projects to fund in a transparent and fair way through preliminarily examinations and evaluation of the feasibility of large-scale government projects. This study assesses the achievements of PFS by investigating improvements in the accuracy of traffic forecasting results and analyzing the determinants of traffic forecasting errors in PFS. The traffic forecasting data include 42 road projects for which PFS were conducted and 113 road projects that were not subject to PFS and for which forecasts and actual out-turns were available. The results reveal that 41.3% of traffic forecasts were overestimated before the introduction of PFS. This statistic contrasts with the traffic forecasting error rate of 14.53% since PFS became mandatory. Moreover, traffic forecasts of PFS projects were also unbiased. By analyzing the determinants of traffic forecasting errors in PFS projects using the random forest approach, we also found that the characteristics of the project manager and forecaster, and the influence of politicians or political groups, had minimal effect on traffic forecasting errors. We conclude that PFS enhances the accuracy of traffic forecasts and prevents the initiation of inefficient transportation projects. Our study fills a gap in the existing literature because few studies have focused on the various factors affecting traffic forecasting error based on data and econometrics. This study also examines the effects of policy measures to mitigate overestimation and increase traffic forecasting accuracy. Our results emphasize the significant role of analysts, the need for credible guidelines and an independent evaluation institution, and the importance of a robust governance system in public investment management.