Road Capacity, Domestic Trade and Regional Outcomes

58 Pages Posted: 27 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: 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: trade, market access, transportation infrastructure

JEL Classification: F140, R110, R410

Suggested Citation

Coşar, Kerem and Demir, Banu and Ghose, Devaki and Young, Nathaniel, Road Capacity, Domestic Trade and Regional Outcomes (2021). CESifo Working Paper No. 9310, Available at SSRN: https://ssrn.com/abstract=3929204 or http://dx.doi.org/10.2139/ssrn.3929204

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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