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Railroads of the Raj: Estimating the Impact of Transportation Infrastructure

Author:
Dave Donaldson  


Issue Date:
2009


Abstract(summary):

How large are the benets of transportation infrastructure projects, and what explains these benets To shed new light on these questions, I collect archival data from colonial India and use it to estimate the impact of India s vast railroad network. Guided by six predictions from a general equilibrium trade model, I nd that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional 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 that (6), a sucient statistic for the eect of railroads on welfare in the model accounts for virtually all of the observed reduced-form impact of railroads on real income. I nd similar results from an instrumental variable specication, no spurious eects 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 signicantly, and do so because they can allow regions to exploit static gains from trade.


Page:
66


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