Chinese Roads in India: The Effect of Transport Infrastructure on Economic Development

Abstract

India and China followed different strategies in the design of their recent highway networks. India first focused on connecting the four largest economic centers of the country, the Golden Quadrilateral, while China had the explicit strategy of connecting intermediate-sized cities. The two countries also experienced different regional development patterns, with stronger convergence in China. This paper analyzes the aggregate and distributional effects of transport infrastructure in India based on a general equilibrium trade framework. I compare the effect of the Golden Quadrilateral to a counterfactual network that connects India's intermediate-sized cities. To construct the counterfactual network, I propose a heuristic network design algorithm to maximize aggregate real income net of road construction costs in the general equilibrium model, and I show that the heuristic algorithm provides a good approximation of the optimal network. The results suggest that the actual network led to sizable aggregate gains but unequal effects across regions. The income-maximizing counterfactual network is substantially larger than the actual Indian network, would imply further aggregate gains, and would benefit the lagging regions of India.

Keywords: Transport Infrastructure, Economic Growth, Regional Development, Trade, Network Design, India, China, Geographic Information System, Satellite Data, Night Lights

JEL Classification: F11, F14, F15, O11, O18, R12, R13