Working Paper: NBER ID: w16487
Authors: Dave Donaldson
Abstract: How large are the benefits of transportation infrastructure projects, and what explains these benefits? To shed new light on these questions, this paper uses archival data from colonial India to investigate the impact of India's vast railroad network. Guided by four predictions from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) increased real income levels; and (4), that a sufficient statistic for the effect of railroads on welfare in the model (an effect that is purely due to newly exploited gains from trade) accounts for virtually all of the observed reduced-form impact of railroads on real income in the data. I find no spurious effects from over 40,000 km of lines that were approved but - for four different reasons - were never built.
Keywords: Transportation Infrastructure; Railroads; Trade Costs; Welfare; Colonial India
JEL Codes: F15; N15; N75; O1; R13; R4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Expansion of railroad network in India (R42) | Decrease in trade costs (F19) |
| Expansion of railroad network in India (R42) | Decrease in interregional price gaps (R12) |
| Arrival of the railroad network in a district (L92) | Increase in real income levels (F61) |
| Decrease in trade costs (F19) | Increase in trade flows (F19) |
| Share of expenditure sourced locally (H76) | Welfare gains due to railroads (D69) |
| Proposed but unbuilt railroad lines (R49) | No spurious effects on economic outcomes (F69) |