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

Friday, 7 April, 2017
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.