Decomposing the Economic Effects of Transport Infrastructure

16.04.2019 12:30 – 13:30

GENEVA TRADE AND DEVELOPMENT WORKSHOP / ABSTRACT

In the wide range of determinants of trade and transaction cost, few are actionable by policy makers. Of those, two local ones which matter when crossing national borders -- tariff and nontariff technical and standards-related \textit{trade costs} of international trade -- and a global, subnationally as well as internationally relevant one -- infrastructure investments as a \textit{transport cost} variable -- appear most important. Relative to transport costs, tariff measures are now relatively negligible, and what is referred to as nontariff policy trade costs is often not actionable (as domestic standards and technical requirements would have to be changed, which is often undesirable from not only from a protectionist point of view but also from the viewpoint of consumer preferences). This places infrastructure investments in the center stage in discussions about important policy instruments which are capable to facilitate trade and transaction costs. Hence, it does not come as a surprise that we see a widespread use of infrastructure investments to make places (countries or regions) more accessible for goods and factors.

Clearly, the need of transport infrastructure investments appears particularly pertinent, whenever economies are economically large or fast-growing while facing high transport costs due to bad transport networks. A prime example of such a country is China. Since about the early 1990s and particularly since its membership in the World Trade Organization (WTO) in 2001, the development of transport infrastructure has been a key focus for the Chinese government. Not surprisingly, we did see an enormous surge in transport-infrastructure projects in China during this period.\footnote{In his press conference on January 21, 2019, regarding the slow-down of China's growth for which partly the US-China trade war is held responsible, the director of China's National Statistical Bureau, Jizhe Ning, explicitly said that transport infrastructure investments would be an important instrument to stimulate and reduce the costs of domestic consumption. Inter alia, the country follows this strategy under what is called the \textit{Belt and Road Initiative}.} The World Bank funded 29 projects on the development of roads and highways in China since 1990 and the process is still ongoing. The interest in developing China's transport network becomes even more apparent, when comparing the total amount the World Bank has invested. For instance, of all the transport infrastructure projects in the world worth \$1,1 billion funded by the World Bank in 2017, \$450 million were invested in China (Projects \& Operations, The World Bank\footnote{Source: http://projects.worldbank.org}). In the same year, the estimated private investments into transport infrastructure in China amounted to \$13 billion (Private Participation in Infrastructure Project Database, The World Bank\footnote{Source: http://ppi.worldbank.org}). The majority of the transport infrastructure investments in China were spent on the extension and technological improvement of the national road and railway system.


In conducting our structural quantitative analysis for 330 prefectures in China, we pay particular attention to two aspects. First, we develop a novel approach in dealing with the endogeneity of the realized transport infrastructure improvements. Second, we decompose the overall economic effects of transport infrastructure into the aforementioned four components. Our analysis builds on a calibrated version of the Chinese economy in which we use novel, hand-collected, annual data on the road and railway network for the period 1992-2013. In particular, this data-set permits using observable differences in infrastructure between more or less distant points in time in order to quantify relevant and observed changes in terms of their economic effects. We address the endogeneity of the transport network at a given point in time through a three-step approach that combines a cost prediction of building a network path, the Dijkstra algorithm to compute the minimum costs, and the Monge-Kantorovich and Kruskal's algorithm to derive an optimal transport network.

Lieu

Bâtiment: IHEID

Graduate Institute
Maison de la Paix
Petal 2, Room S4
2 Chemin Eugène-Rigot
1202 Geneva

entrée libre