 Optimal Infrastructure after Trade Reform in IndiaPriyam Verma Journal of Development Economics, 2024, vol. 166, issue C Abstract: Lower tariffs typically raise productivity, production, and trade, increasing the benefits from building infrastructure. Infrastructure spending by governments should therefore increase after countries open up to trade. I test this hypothesis empirically using a trade reform in India and find that a 1 percentage point reduction in tariffs increased states’ infrastructure spending by 0.5% between 1991 and 2001. To understand the mechanisms behind my empirical findings, I develop and calibrate a multi-region model of international trade, private capital accumulation, and infrastructure spending, in which each government chooses such spending to maximize their state’s welfare. I find if governments choose infrastructure following the reform optimally, infrastructure would have increased by 60% on average. The actual increase, based on my empirical findings, was about 29%. Counterfactual exercises show that raising aggregate infrastructure towards its optimal following the trade reform will result in state GDP to increase by 7% points on average. Keywords: Infrastructure; Tariffs; Trade (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:166:y:2024:i:c:s0304387823001645 DOI: 10.1016/j.jdeveco.2023.103208 Access Statistics for this article Journal of Development Economics is currently edited by M. R. Rosenzweig More articles in Journal of Development Economics from Elsevier |
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