A significant amount of resources is spent every year on the improvement of transportation
infrastructure in developing countries. In this paper, published as a CEPR discussion paper series, Asturias, García-Santana and Ramos (2016) investigate the effects of one such
large project, the Golden Quadrilateral in India, on the income and allocative efficiency of
the economy. They do so using a quantitative model of internal trade with variable markups.
The authors find real income gains of 2.71% in the aggregate and 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.