Transport Costs Decline and Regional Inequalities: Evidence from France

Abstract

This Paper first develops a tractable economic geography model we use to investigate the decline of transport costs as a cause of regional inequalities. Next, we perform a structural estimation of this model using a new dataset on road transport costs between the 341 French Employment Areas. We find that intermediate inputs and geographical features play a critical role in the concentration pattern of French economic activities. Estimations being consistent with plausible values for the structural parameters of the model, we finally provide simulations of French local sectoral employment and production conditions. We find a very strong core-periphery structure of short-run profits, which means that large concentration incentives exist in France. By contrast, a short-run analysis of the impact of a transport costs decline reveals that whereas dispersive forces become prevalent at the country level, agglomeration incentives strenghtens specialization within a large number of the French regions. As regards profits, the emergence of a duo-centric structure confirms such a feature.

Keywords: Economic geography, transport costs, infrastructure, agglomeration

JEL Classification: F10, O10, R30