Market potential, road accessibility, and firm births: evidence from twenty years of road investment

Mauricio S. de Carvalho, Patrícia C. Melo, Bruno Rocha, Isabel Proença and João de Abreu e Silva

No 2025/0364, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper investigates the causal effects of road accessibility, measured by market potential, on firm births in Portuguese municipalities between 1991 and 2016, a period marked by significant road improvements. We address the endogeneity of market potential by employing instrumental variables within Poisson Pseudo-maximum Likelihood estimates with fixed effects, which we refer to as “non-local time-variant historical instruments”. Our estimated elasticities for firm births range from 1.6 to 1.9 for the 1-year interval and 1.2 to 1.3 for the 5-year interval. Additionally, we find a greater positive effect on firm births when excluding the metropolitan areas of Lisbon and Porto, which is indicative evidence of a heterogeneous spatial effect. We also find that the impact of the enlarged market potential is heterogeneous across sectors. Our results are robust to changes in model specification and the usage of alternative measures of the instruments.

Keywords: road investment; firm births; market potential; Poisson Pseudo-maximum; Likelihood; instrumental variables. (search for similar items in EconPapers)
JEL-codes: O18 R39 R49 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-tre and nep-ure
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