Land Transport Infrastructure

The large literature on land transportation in developing countries has found that transportation infrastructure has the potential to generate large gains. While these gains have largely been found to be aggregate growth effects and not just a reshuffling of economic activity between locations, not all places benefit equally from transportation investments. In particular, intercity transportation options tend to benefit relatively more developed or industrial areas more than rural or less developed ones, and the literature has not found clear evidence that rural roads have a transformative impact on rural villages. By connecting residents to jobs and amenities, intracity transportation has been shown to generate significant gains in productivity, innovation, and connecting residents to formal work, but care should be taken to design urban infrastructure in a way that takes into account environmental externalities.

The literature on land transportation in developing countries is growing rapidly, invigorated by the rapid rate of urbanisation taking place, newly available spatial data, and the embrace of international trade models for the study of infrastructure effects. In recent years, the infrastructure impacts literature has benefited from applying the causal identification toolkit like instrumental variable and regression discontinuity methods to obtain exogenous variation in infrastructure. This has allowed a better understanding of the impacts of these investments and provided a way to address localised spatial spillovers of infrastructure. The other influential methodological innovation in the literature has been the use of trade models to estimate general equilibrium effects of infrastructure. These models allow infrastructure changes in some parts of the network to affect all nodes and propose models that capture indirect effects.

Some exciting areas of research that are only now emerging focus on the dynamic impacts of infrastructure and the interaction with market failures like pollution externalities. We believe that using new granular data, such as mobile phone data, will provide new insights into the benefits of transportation infrastructure and how these projects interact with other aspects of the economy. An emerging trend is the growing interest in studies of infrastructure that pay more attention to distributional effects. Finally, we noted a need for better cost of infrastructure data to be able to compare costs and benefits between competing investment alternatives. More subtly, developing countries present an exciting opportunity for academic research investigating how infrastructure investments are selected, financed, and located in an environment of weak institutions in which political or corruption concerns may play an outsized role.

We end by pointing to the emerging literature focused on optimal transportation networks as opposed to work that evaluates ex-post the impact of different transportation investments. A prominent example of this literature is Fajgelbaum and Schaal (2020) who study the best way to allocate transportation infrastructure in a general equilibrium framework. This kind of work has the potential to be influential for placement and total investment decision-making in developing countries.

Reference

Fajgelbaum, P and E Schaal (2020), “Optimal Transport Networks in Spatial Equilibrium.” Econometrica 88(4), 1411–1452.