Chinese Roads in India: The Effect of Transport Infrastructure on Economic Development

This paper uses a general equilibrium framework as in Eaton and Kortum (2002) to estimate the contribution of transport infrastructure to regional development. I apply the analysis to India, a country with a notoriously weak and congested transportation infrastructure. I first analyze the development effects of a recent Indian highway project that improved connections between the four largest economic centers. I estimate the effect of this new infrastructure on income across districts using satellite data on night lights. The results show aggregate gains from the Indian highway project, but unequal effects across regions. China has followed a different highway construction strategy and has experienced more significant convergence across regions than India. I therefore use the model to gauge the effects of a counterfactual highway network for India that replicates the Chinese strategy of connecting intermediate-sized cities. The results suggest that this counterfactual network would have benefited the lagging regions of India. I also construct additional counterfactuals and discuss their effects on economic development.