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Railroads of the Raj: estimating the impact of transportation infrastructure

Donaldson, Dave (2010) Railroads of the Raj: estimating the impact of transportation infrastructure. Working Paper, 41. Asia Research Centre, London School of Economics and Political Science, London, UK.

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Identification Number: 41

Abstract

How large are the benefits of transportation infrastructure projects, and what explains these benefits? To shed new light on these questions, I collect archival data from colonial India and use it to estimate the impact of India's vast railroad network. Guided by six predictions from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) eliminated the responsiveness of local prices to local productivity shocks (but increased the transmission of these shocks between regions); (4) increased the level of real income (but harmed neighboring regions without railroad access); (5) decreased the volatility of real income; and (6), a sufficient statistic for the effect of railroads on welfare in the model accounts for virtually all of the observed reduced-form impact of railroads on real income. I find similar results from an instrumental variable specification, no spurious effects from over 40,000 km of lines that were approved but never built, and tight bounds on the estimated impact of railroads. These results suggest that transportation infrastructure projects can improve welfare significantly, and do so because they allow regions to exploit gains from trade.

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/collections/asiaResearchCentr...
Additional Information: © 2011 The author
Subjects: D History General and Old World > DS Asia
H Social Sciences > HC Economic History and Conditions
H Social Sciences > HE Transportation and Communications
Sets: Collections > Economists Online
Research centres and groups > Asia Research Centre
Date Deposited: 21 Sep 2011 09:56
Last Modified: 15 Aug 2014 08:55
Projects: `Growth and Inclusion'
Funders: Bagri Fellowship, Department for International Development (DFID)
URI: http://eprints.lse.ac.uk/id/eprint/38368

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