Migration, Congestion Externalities, and the Evaluation of Spatial Investments

48 Pages Posted: 20 Jan 2015 Last revised: 14 Jun 2023

See all articles by Taryn Dinkelman

Taryn Dinkelman

Dartmouth College - Department of Economics

Sam Schulhofer-Wohl

Federal Reserve Banks - Federal Reserve Bank of Dallas; Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

The direct benefits of infrastructure in developing countries can be large, but if new infrastructure induces in-migration, congestion of other local publicly provided goods may offset the direct benefits. Using the example of rural household electrification in South Africa, we demonstrate the importance of accounting for migration when evaluating welfare gains of spatial programs. We also provide a practical approach to computing welfare gains that does not rely on land prices. We develop a location choice model that incorporates missing land markets and allows for congestion in local land. Using this model, we construct welfare bounds as a function of the income and population effects of the new electricity infrastructure. A novel prediction from the model is that migration elasticities and congestion effects are especially large when land markets are missing. We empirically estimate these welfare bounds for rural electrification in South Africa, and show that congestion externalities from program-induced migration reduced local welfare gains by about 40%.

Suggested Citation

Dinkelman, Taryn and Schulhofer-Wohl, Sam, Migration, Congestion Externalities, and the Evaluation of Spatial Investments (January 2015). NBER Working Paper No. w20842, Available at SSRN: https://ssrn.com/abstract=2551651

Taryn Dinkelman (Contact Author)

Dartmouth College - Department of Economics ( email )

Hanover, NH 03755
United States

Sam Schulhofer-Wohl

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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