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DECTI Trade Seminar: Railroads of the Raj: Estimating the Impact of Transportation Infrastructure

Sponsor: Development Economics and Chief Economist (DEC)

Video Recording of the Seminar

SpeakerDave Donaldson, Department of Economics, MIT

Abstract: How large are the benefit of transportation infrastructure projects, and what explains these
benefits? To shed new light on these questions, I collect archival data from colonial India
and use it to estimate the impact of that railroads:

  1. decreased trade costs and interregional price gaps;
  2. increased inteIndia's vast railroad network. Guided by six predictions from a general equilibrium trade model, I and regional and international trade;
  3. eliminated the responsiveness of local prices to local productivity shocks (but increased the transmission of these shocks between regions);
  4. increased the level of real income (but harmed neighboring regions without railroad access);
  5. decreased the volatility of real income; and
  6. a sufficient statistic for the effect of railroads on welfare in the model accounts for virtually all of the observed reduced-form impact of railroads on real income.

I find similar results from an instrumental variable speciacation, no spurious effects from over 40,000 km of lines that were approved but never built, and tight bounds on the estimated impact of railroads. These results suggest that transportation infrastructure projects can improve welfare significantly, and do so because they allow regions to exploit gains from trade.

For Information: Yasmin D Souza

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