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The study described in the article shows that implementation of dynamic LED boards doesn’t show a clear increase in traffic flow at the bottleneck before congestions, probably because the LED displays provide static information instead of dynamic.

Is this a proper way of using "instead of"?

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    Yes it is the proper way. You could substitute as opposed to if you wanted. – Jim Nov 7 '14 at 4:14
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    It's an odd sentence semantically though, because they are called "dynamic LED boards" in the first part, but then it says they only display static information in the second part. – Jim Nov 7 '14 at 4:15
  • @Jim I believe it uses "dynamic LED boards" to indicate that they are capable of showing various different displays, which once activated are then static. It's using dynamic in two different ways: the first might reasonably be replaced by "variable-message". [Not that that's relevant to "instead of".] – Andrew Leach Nov 7 '14 at 7:46
  • Then they should take out the first use of dynamic: "that implementation of LED boards doesn't ..." – Jim Nov 7 '14 at 7:49
  • "implementation of dynamic LED boards doesn't show a clear increase" contains a poorly chosen verb. The implementation might lead to or produce an increase. Better yet, change "increase" into a verb: "implementation of dynamic LED boards doesn't increase traffic flow". – 200_success Nov 7 '14 at 10:18
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The example you cite has a lot of weaknesses, some of which have already been pointed out by commenters above. However, the issue you raise with "the LED displays provide static information instead of dynamic" involves phrasing that is neither ideal nor altogether indefensible.

The author may have struggled with not being free to use the relatively natural-sounding wording "the LED displays provide static instead of dynamic information." That wording is problematic in the example sentence because static can function either as a stand-alone noun or as an adjective, and the former would invite a misreading that the author wants to avoid. Compounding that problem is the author's unwillingness to repeat the word information at the end of the sentence—as "the LED displays provide static information instead of dynamic information"—which forces the reader to supply the implied final word, and which in any case sounds awkward and artificial.

As Andrew Leach points out, the example already uses the crucial word dynamic in two ways, without the least warning about the dual meanings. It also uses shows/show in two senses (neither of them particularly apt). And the phrase "traffic flow at the bottleneck before congestions" is ambiguous: Does it refer to a bottleneck in traffic flow prior to periods of major congestion, or does it refer to a bottleneck in traffic flow preceding areas of major congestion? I can't tell.

So it may be that your dissatisfaction with the handling of "instead of" is part of a cumulative negative reaction to a sentence that suffers from multiple annoying but not fatal flaws.

If I had been responsible for editing this sentence, I might have come up with something like this:

According to the study described in the article, introducing LED boards that can display different messages didn’t significantly improve traffic flow at the bottleneck[s] prior to periods [or "at the bottlenecks preceding areas," depending on what the author's original wording means] of congestion. The explanation for this may be that the information on the LED displays is static rather than dynamic.

I chose to use "rather than" instead of "instead of" near the end of the example because it sounded slightly better to me, perhaps because "rather than" doesn't carry as strong a sense of "in place of" (as though the static information were replacing the dynamic information, rather than simply being an alternative to it); but if you set it up properly, there is nothing inherently wrong or awkward about ending a sentence with "instead of" plus an adjective, as in "static instead of dynamic."

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