Road Capacity, Domestic Trade and Regional Outcomes

58 Pages Posted: 22 Sep 2021

See all articles by Kerem Coşar

Kerem Coşar

University of Virginia; National Bureau of Economic Research (NBER)

Banu Demir

Bilkent University; Centre for Economic Policy Research (CEPR)

Devaki Ghose

World Bank

Nathaniel Young

European Bank for Reconstruction and Development (EBRD)

Date Written: September 2021

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: market access, Trade, Transportation Infrastructure

JEL Classification: F14, R11, R41

Suggested Citation

Coşar, Kerem and Demir, Banu and Ghose, Devaki and Young, Nathaniel, Road Capacity, Domestic Trade and Regional Outcomes (September 2021). CEPR Discussion Paper No. DP16512, Available at SSRN: https://ssrn.com/abstract=3928823

Kerem Coşar (Contact Author)

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Banu Demir

Bilkent University ( email )

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Devaki Ghose

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Nathaniel Young

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

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