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

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