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

Time:2017-06-12 14:33:53  Hits:[]

A significant amount of resources is spent every year on the improvement of transportation infrastructure in developing countries. In this paper, we investigate the effects of one such large project, the Golden Quadrilateral in India, on the income and allocative efficiency of the economy. We do so using a quantitative model of internal trade with variable markups. We calibrate the model to the Indian manufacturing sector and find real income gains of 2.71%. We also find that allocative efficiency accounts for 8% of these gains. The importance of allocative efficiency varies greatly across states, and can account for up to 19% of the overall gains. Thus, allocative efficiency can play an important role in determining both the size and distribution of gains from new infrastructure.

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