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

Wednesday, 29 April, 2015
Abstract: 
The authors, Asturias, Garcia-Santana, and Ramos (2014) quantify the benefits from improving transportation infrastructure. To do so, they use a model in which firms compete oligopolistically, which means that markups that firms charge change as a result of changes in transportation costs. They apply this model to the case of the construction of the Golden Quadrilateral (GQ), a large road infrastructure project in India. We find that the project generates large aggregate gains: benefits exceed the initial investment in just two years. They also find that: (i) pro-competitive gains are approximately 20% of total gains and (ii) the size and nature of welfare gains are very heterogeneous across states.