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Intranational trade costs, product scope and productivity: Evidence from India's Golden Quadrilateral project

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  • Abeberese, Ama Baafra
  • Chen, Mary

Abstract

We examine the potential for a reduction in intranational trade costs to increase firm pro-ductivity. Recent trade theories highlight a channel through which this increase may occur – a reduction in trade costs increases competition and leads firms to drop the products in which they are least efficient. We provide empirical evidence for this prediction in the context of an exogenous reduction in intranational trade costs induced by a highway construction project in India. We find that product scope falls and firm productivity rises in response to the construction of the highway. We also find that the products dropped are those that account for the lowest shares of the firm's output.

Suggested Citation

  • Abeberese, Ama Baafra & Chen, Mary, 2022. "Intranational trade costs, product scope and productivity: Evidence from India's Golden Quadrilateral project," Journal of Development Economics, Elsevier, vol. 156(C).
    • Handle: RePEc:eee:deveco:v:156:y:2022:i:c:s0304387821001486
    DOI: 10.1016/j.jdeveco.2021.102791
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    3. Branco, Catarina & Dohse, Dirk C. & Pereira dos Santos, João & Tavares, José, 2023. "Nobody’s gonna slow me down? The effects of a transportation cost shock on firm performance and behavior," Open Access Publications from Kiel Institute for the World Economy 273314, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Firms and development; Intranational trade; Productivity; Transportation in-frastructure;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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