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The Welfare Effects of Transportation Infrastructure Improvements

Treb Allen and Costas Arkolakis ()

No 212, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a general equilibrium geographic framework to characterize the welfare effect of transportation infrastructure investments. We tackle three distinct but conflating challenges: First, we offer an analytical characterization of the routing problem and, in particular, how infrastructure investment between any two connected locations decreases the total trade costs between all pairs of locations. Second, we characterize how this cost reduction affects welfare within a standard general equilibrium geography setup where market inefficiencies arise due to agglomeration and dispersion spillovers. Finally, we show how our framework admits analytical characterizations of traffic congestion, which creates a critical --albeit tractable--feedback loop between trade costs and the general equilibrium economic system. We apply these results to calculate the welfare eects of improving each of the thousands of segments of the U.S. national highway network. We nd large but heterogeneous welfare eects with the largest gains concentrated in metropolitan areas and along important trading corridors

Date: 2019
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