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Road to productivity: Effects of roads on total factor productivity in Indian manufacturing

Subham Kailthya and Uma Kambhampati ()

Journal of Comparative Economics, 2022, vol. 50, issue 1, 174-195

Abstract: A denser road network lowers transport costs and stimulates manufacturing total factor productivity (TFP). The placement of roads, however, is likely to be non-random. For identification, we exploit cross-state variation in the strength of centre-state partisan alignment that asymmetrically affects road building in aligned states. Using panel data on manufacturing establishments in India from 1998 to 2012, we find that, a 1% increase in road density raises value-added TFP by about 0.25%, on average. A closer examination reveals that the effect varies by plant characteristics and road type. Younger establishments are more likely to gain from a denser road network with highways playing a prominent role. The results are robust to imperfections in the instrument and to other sensitivity checks.

Keywords: Market integration; Total factor productivity; Transport infrastructure; Manufacturing industry; Plant level analysis (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jce.2021.08.001

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Handle: RePEc:eee:jcecon:v:50:y:2022:i:1:p:174-195