e per pkm = fcn (GDPpc) such that: (for GDPpc < USD 5 000): = 0.2 (for USD 5 000 < GDPpc < USD 10 000): = 0.2+[((GDPpc-5 000)/1000)*0.04] * (for USD 10 000 < GDPpc): = 0.4 The ratio of PRCS to GDP is of considerable importance, as evidence (Munnell, 1993, etc.) indicates that this is falling over time for high-income industrialised countries, but likely needs to rise for developing countries (Canning-Padroni, 1999) as the evidence indicates a positive elasticity of PRCS with respect to GDPpc. Effectively, three relationships are exploited in the estimation of future levels of PRCS. Step 1: a rising level of PCRS as GDPPC rises; INFRASTRUCTURE TO 2030: TELECOM, LAND TRANSPORT, WATER AND ELECTRICITY - ISBN 92-64-02398-4 © OECD 2006 4. KEY FACTORS DRIVING THE FUTURE DEMAND FOR SURFACE TRANSPORT INFRASTRUCTURE Step 2: a rising quality of asset value per pkm as GDPPC rises (as above); and Step 3: long-term convergence of the ratio of PRCS-GDP. Initially, empirical estimates were made using the first two steps. This generally resulted in the downward drift over time of the ratio of PRCS-GDP in industrialised countries, but it did not produce any noticeably upward change in the ratio of PRCS-GDP for Big 5 and developing countries. The reason for this (ex post rationalisation) was that the elasticity effect (Step 1) assumes implicitly that the base level of PRCS is "optimal" to some degree - whereas in most cases it is significantly sub-optimal (see Canning-Pedroni, 1999; and casual empiricism). Therefore, there is a need to some closing of the "infrastructure gap" by raising the ratio of PRCS-GDP over time for Big 5 and developing countries. Step 1: Application of elasticity of PRCS wrt GDP It is assumed, based on a review of estimates and the 2-tier approach of Fay-Yepes (2003) that the elasticity of PRCS-GDP (5 pr) is: & pr = fcn (GDPpc) such that: (for GDPpc < USD 000): = 0.15 (for USD 5 000 < GDPPC < USD 10 (000):=0.15+[((GDPpc-5 000)/1000)*0.02] = (for USD 10 000 < GDPpc): = 0.25 The forecast PRCS is then the strai