Road Infrastructure and the Skill Premium: Evidence from Indian Manufacturing

47 Pages Posted: 22 Nov 2022

See all articles by Santanu Chatterjee

Santanu Chatterjee

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics

Thomas Lebesmuehlbacher

Xavier University

Abhinav Narayanan

Government of India - Reserve Bank of India

Date Written: November 14, 2022

Abstract

We examine the relationship between new road infrastructure and local labor markets in India's manufacturing sector by exploiting the variation in completion times of a major highway construction project. Using firm and individual-level data, we find that the skill premium increases in districts that are on a completed section of the highway project. This effect is driven by large firms, especially those with a large share of transportation assets, indicating the presence of capital-skill complementarity. On the other hand, the skill composition at the firm level remains unchanged, pointing to labor market imperfections: the skill premium increases in districts with a larger than average share of under-qualified workers. Further, completion of a highway segment reduces the monopsony power of local firms, enabling high skilled workers to bargain for higher wages.

Keywords: Infrastructure, Roads, Public Investment, Golden Quadrilateral, Manufacturing, Skill Premium, Monopsony, Capital-Skill Complementarity, Skill mismatch.

JEL Classification: E2, H4, H5

Suggested Citation

Chatterjee, Santanu and Lebesmuehlbacher, Thomas and Narayanan, Abhinav, Road Infrastructure and the Skill Premium: Evidence from Indian Manufacturing (November 14, 2022). Available at SSRN: https://ssrn.com/abstract=4276999 or http://dx.doi.org/10.2139/ssrn.4276999

Santanu Chatterjee (Contact Author)

University of Georgia - C. Herman and Mary Virginia Terry College of Business - Department of Economics ( email )

Department of Economics
University of Georgia
Athens, GA 30602
United States
706-542-1709 (Phone)

HOME PAGE: http://https://sites.google.com/view/schatterjee/home

Thomas Lebesmuehlbacher

Xavier University ( email )

3800 Victory Parkway
Cincinnati, OH 45207
United States

Abhinav Narayanan

Government of India - Reserve Bank of India ( email )

Bakery Junction Service Road
Vazhuthacaud
Thiruvananthapuram, Kerala 695033
India

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
81
Abstract Views
322
Rank
552,249
PlumX Metrics