How large are the benefits of transportation infrastructure projects, and what explains these benefits? This paper uses archival data from colonial India to investigate the impact of India’s vast railroad network. Guided by four predictions from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) increased real income levels; and (4), that a sufficient statistic for the effect of railroads on welfare in the model accounts for virtually all of the observed reduced-form impact of railroads on real income in the data.
National Bureau of Economic Research (2010), NBER Working Paper
Railroads of the Raj : estimating the impact of transportation infrastructure