Working Paper: CEPR ID: DP16512
Authors: Banu Demir; Kerem Cosar; Devaki Ghose; Nathaniel Young
Abstract: What is the impact on intra-national trade and regional economic outcomes when the quality and lane-capacity of an existing paved road network is expanded significantly? We investigate this question for the case of Turkey, which undertook a large-scale public investment in roads during the 2000s. Using spatially disaggregated data on road upgrades and domestic transactions, we estimate a large positive impact of reduced travel times on trade as well as local manufacturing employment and wages. A quantitative exercise using a workhorse model of spatial equilibrium implies heterogeneous effects across locations, with aggregate real income gains reaching 2-3 percent in the long-run. Reductions in travel times increased local employment-to-population ratio but had no effect on local population. We extend the model by endogenizing the labor supply decision to capture this finding. The model-implied elasticity of employment rates to travel time reductions captures about one-third of the empirical elasticity.
Keywords: trade; market access; transportation infrastructure
JEL Codes: F14; R11; R41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Road capacity improvements (R42) | Reduced travel times (R41) |
| Reduced travel times (R41) | Enhanced intranational trade (F15) |
| Reduced travel times (R41) | Increased local employment-to-population ratios (J69) |
| Reduced travel times (R41) | No significant effect on local population levels (F69) |
| Reduced travel times (R41) | Positive changes in local wages (J39) |
| Road capacity improvements (R42) | Enhanced intranational trade (F15) |
| Road capacity improvements (R42) | Increased local employment-to-population ratios (J69) |
| Road capacity improvements (R42) | Positive changes in local wages (J39) |
| Road capacity improvements (R42) | Aggregate real income gains (E25) |