Jose Asturias, Georgetown University; Manuel García-Santana, Universitat Pompeu Fabra; and Roberto Ramos, Bank of Spain

Competition and the Welfare Gains from Transportation Infrastructure: Evidence from the Golden Quadrilateral of India

What are the economic channels through which transportation infrastructure affect income? Asturias, García-Santana, and Ramos study this question using a model of internal trade in which states trade with each other. In contrast to the previous literature, the researchers do so in a framework that incorporates pro-competitive gains: changes in transportation costs affect the distribution of markups by changing the level of competition that firms face. The authors apply this model to the case of the Golden Quadrilateral (GQ), a large road infrastructure project in India. They discipline the parameters of the model using micro level manufacturing and geospatial data. They find that: i) the project generates large aggregate gains, ii) both standard and pro-competitive gains are quantitatively relevant.