Clearing the Air on the Costs and Benefits of Road Infrastructure

A large literature in spatial economics, development, and trade studies how improvements in transportation infrastructure generate welfare benefits by reducing the costs of within-country trade and commuting. Simultaneously, economists are increasingly recognizing the negative consequences of air pollution, such as reduced life expectancy and decreased productivity. Consequently, it is crucial to consider the local pollutant emissions resulting from road traffic when evaluating both the aggregate and distributional impacts of transport improvements. This project will seek to estimate the local economic costs resulting from transportation infrastructure and road traffic in Pakistan, specifically through increased air pollution, and compare them to the estimated benefits.

The proposed study builds on canonical spatial general equilibrium models to study the welfare benefits of transportation infrastructure, incorporating between-location traffic flows which generate a negative externality (local air pollution). The model accounts for Marshallian externalities, which are the benefits obtained by a sector due to geographical agglomeration, and also allows for spatial reallocation of firms. To build such a model, the researchers will estimate four key elasticities: (1) using monthly VAT transaction data encompassing the near-universe of formal-sector Pakistani firms from 2012 to 2018, including geocodes indicating firm locations, the researchers will construct firm-level demand shocks and estimate the strength of Marshallian externalities; (2) using the same VAT data, the researchers will estimate the elasticity of firm location in relation to profits; (3) using traffic data obtained from GPS trackers installed on approximately 16,000 trucks travelling across Pakistan from 2012 to 2018, the researchers will use over 6 billion truck location observations to estimate how traffic patterns change in response to variations in trade flows; (4) using a state-of-the-art atmospheric pollution transportation model calibrated to the Pakistani context as well as high-resolution population density maps, the researchers will estimate the elasticity of particulate matter exposure in one location with respect to emissions in nearby locations. After developing this spatial general equilibrium model, the researchers will conduct counterfactual analyses to examine and decompose the impact of road improvement projects on welfare across different locations in Pakistan.

This research project aims to inform the design of infrastructure policies by reconciling the need for market integration with the need to shield populations from environmental harm. Infrastructure development is at the heart of many foreign-funded development efforts. Currently, the pollution costs of these projects are typically not well understood or considered in their ex-ante evaluation. Hence, the researchers hope to provide policymakers with methods to ex-ante evaluate the pollution impact and net welfare benefits of infrastructure projects.


Johannes Boehm

Sciences Po

Clare Balboni

London School of Economics (LSE)

Aaron Berman

Massachusetts Institute of Technology (MIT)

Mazhar Waseem

University of Manchester