Competition and the welfare gains from transportation infrastructue: evidence from the Golden Quadrilateral of India
Series: Working Papers. 1816.
Author: Jose Asturias, Manuel García-Santana and Roberto Ramos.
Published in : Journal of the European Economic Association. Volume 17, Issue 6, December 2019, Pages 1881-1940. 
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Abstract
A significant amount of resources is spent every year on the improvement of transportation
infrastructure in developing countries. In this paper, we investigate the effects of one such
large project, the Golden Quadrilateral in India. We do so using a model of internal trade
with variable markups. In contrast to the previous literature, our model incorporates several
channels through which transportation infrastructure affects welfare. In particular, the model
accounts for gains stemming from improvements in the allocative efficiency of the economy.
We calibrate the model to the Indian manufacturing sector and find real income gains of
2.7%. We also find that allocative efficiency accounts for 7.4% of these gains. The importance
of allocative efficiency varies greatly across states, and can account for up to 18% of the
overall gains in some states. The remaining welfare gains are accounted for by changes in
labor income, productive efficiency, and average markups that affect states’ terms of trade.