Melitz Meets Lewis: The Impacts of Roads on Structural Transformation and Businesses

Joseph Kaboski, Jianyu Lu, Wei Qian and Lixia Ren

No 32448, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the impact of roads on structural transformation and business composition theoretically and empirically. We develop a two-sector model of regional trade with endogenous firm entry that highlights two opposing forces. \textit{Ceteris paribus} lower trade costs in non-agriculture lead to fewer firms, but cheaper agricultural imports releases labor from local agricultural production leading to more firms. Using major highway programs in India and China, we find results broadly consistent with the theory, with declines in the number of businesses where structural transformation is weak, and increases where it is strong.

JEL-codes: F15 O13 O18 O41 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-agr, nep-int and nep-inv
Note: DEV EFG
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