Land Transport Infrastructure

Developing countries face significant challenges in providing land transport infrastructure to places and residents. Not only do low and lower-middle-income countries have fewer roads per capita and per square kilometre than high-income countries, but transportation services in many cases are also less reliable and more costly. While this gap suggests that investment in improving the land transportation network may be important for development, evaluating the costs and benefits of land transport infrastructure is crucial for determining whether these investments really deliver higher incomes, and whether the benefits outweigh the costs.

The review discusses how measuring the benefits of land transportation infrastructure must deal with two central challenges, one empirical and one conceptual. Empirically, infrastructure investments are rarely placed randomly, so researchers must utilise modern causal inference methods to separate the effect of infrastructure on a place from the fact that up-and-coming areas may be specifically targeted for investments. Conceptually, concluding whether infrastructure investments lead to actual economic growth is complicated by the fact that infrastructure may displace or relocate economic activity to better connected areas. Recent advances in general equilibrium models that characterise spillovers in other regions can help researchers separate growth from relocation. We view much of the frontier work in this literature as focusing on the effects of infrastructure in the context of missing markets and market failures that are common in developing countries.

The rest of the review discusses results from the academic literature that has looked to answer these questions. We organise the review into two main sections: Interregional transportation and intracity transportation. The interregional transportation literature itself is divided into subsections discussing results from the rail, highways, and rural roads literature. The intracity transportation literature is divided into subsections discussing results from road transit (comprising cars, buses, and BRTs) and rail transit (subways and light rail) literatures. Throughout the review, we try to point out areas where more research is needed.

Our review of the literature finds that highways and trains that connect regions and cities have largely been found to create substantial benefits to connected areas, though larger, relatively more developed, and more industrial cities see larger gains than rural and less developed cities, and factor mobility is crucial for gains to materialise. Compared to interregional highways and rail, rural or last-mile roads on their own have been found to have much more muted impacts on village economies. The evidence is mixed on whether rural roads increase incomes in previously isolated villages, although in the majority of cases they do allow individuals to move out of agriculture.

Urban transit options such as subways and bus rapid transit (BRT) create more value than just travel time saved by bringing residents and firms together, and evidence suggests that they induce less urban sprawl than highways. While urban connectivity promotes formal employment and innovation, the impact of these modes on alleviating congestion or pollutant concentrations associated with car use depends on the context. Recent research applying theoretical frameworks to different developing city contexts suggests that the optimal urban transportation network would be more extensive and involve a larger fleet than existing networks.

Land Transport Infrastructure: Presentation of key takeaways

For our launch event, Marco Gonzalez-Navarro and Román David Zárate joined us to present the key takeaways from this VoxDevLit, highlighting policy relevant results from recent economic research on land transportation infrastructure.