Land Transport Infrastructure

In developing countries, substantial resources are allocated each year to build and upgrade infrastructure, aiming to facilitate market integration, enhance long-term productivity, and improve the competitiveness of local actors in global markets. International organisations support these efforts: The World Bank’s portfolio currently includes 165 active transport projects with $33.2 billion in commitments, representing about 10% of total World Bank lending.[1]1.World Bank Transportation. https://www.worldbank.org/en/topic/transport/overview#2, accessed October 2023.  It is thus vital for academics and policymakers to have a good understanding of the benefits and costs of different transport infrastructure options as well as what aspects to consider in order to maximise expected impacts.

It is in this spirit that this VoxDevLit review provides an overview of recent developments in the academic literature that focus on assessing land infrastructure projects (roads and railways, both between regions and within cities) paying special attention to their effects on economic growth, welfare, and factor reallocation. We build on other surveys of the transportation literature (Redding and Turner 2015, Duranton et al. 2020, Berg et al. 2017), placing specific emphasis on evidence from developing countries and new methods for evaluating the benefits of transportation infrastructure.

In Section 3 of the report, we outline the current landscape of transportation in developing countries, describing quantities and quality of the infrastructure relative to more developed economies. Overall, and not surprisingly, we find an important gap in the quantity and quality of infrastructure. Lower and middle income economies only have 25%-33% of the infrastructure of high-income economies in per-capita terms, and even after controlling for the quality and quantity of these gaps, comparisons across locations suggest that transportation costs are still higher. These findings imply significant challenges for developing countries in lowering the cost of transportation along different dimensions, going beyond the provision of more physical infrastructure to improve aspects such as corruption in procurement, bribes paid along highways, and location decisions for infrastructure that follow ethnic or political imperatives rather than economic ones.

Next, in Section 4, we review the different methods and techniques used in the literature to evaluate infrastructure investments. Assessing the impacts of infrastructure projects comes with two significant challenges: i) the issue of endogeneity since infrastructure improvements are not randomly allocated and ii) that investments may generate potential general equilibrium (GE) effects on the overall economy and on unexposed regions. In this context, we examine the approaches used in the literature to tackle these challenges. We particularly focus on techniques that combine difference-in-difference specifications with instrumental variables (IV) and those that use GE models borrowed from the trade literature to understand how infrastructure affects aggregate welfare through trade and commuting linkages using market access measures.

The last two sections review the current literature, organising it into two different categories of infrastructure. Interregional transportation, which improves market integration between cities and facilitates trade, and intracity transportation, which enhances labour mobility with a focus on improving commuting connections.

Section 5, on the interregional transportation literature, is itself divided into two parts — studies examining the effects of railways, and research focusing on the effects of road infrastructure. Overall, the findings suggest that these investments have had a significant positive effect on the well-being and prosperity of people. However, there are instances in which roads did not generate a significant impact and other cases where governments could have allocated their resources more efficiently. Hence, the evidence highlights the importance of context — the benefits of transportation investments may depend on initial location characteristics such as level of development or sectoral composition. We finish the section describing open questions for future research. For instance, studies of the interaction of these investments with other aspects such as market power in the transportation sector and dynamic effects that involve interactions with climate change and risk.

We proceed with a similar structure in Section 6, reviewing papers that have studied the benefits of intracity transportation in developing country cities. We again divide our literature review into a) road infrastructure (for cars, buses and BRTs) and b) rail infrastructure (subways, light rail and cable car) and summarise the literature that has studied the effect of these different land transportation options on pollution, congestion, and aggregate welfare. Similar to the case of interregional transportation there are several open questions, such as the examination of informal transportation modes, the consequences of rapid increases of motorisation in developing countries and the importance of management quality for transit systems.

References

Berg, C, U Deichmann, Y Liu, and H Selod (2017), “Transport Policies and Development.” Journal of Development Studies 53(4): 465–480.

Duranton, G, G Nagpal, and M Turner (2020), “Transportation Infrastructure in the US.” NBER Working Paper 27254.

Redding, S and M Turner (2015), “Transportation Costs and the Spatial Organization of Economic Activity.” In G. Duranton, J. Henderson, and W. Strange (Eds.), Handbook of Regional and Urban Economics, Volume 5, pp. 1339–1398. Elsevier.