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Building Bridges: The Effect of Major Infrastructure Development on Trade

Author

Listed:
  • Persson, Maria

    (Department of Economics, Lund University)

  • Soegaard, Christian

    (Department of Economics, University of Warwick)

  • Welander Tärneberg, Anna

    (Centre for Economic Demography, Lund University)

Abstract

We provide evidence of a positive effect of major infrastructure development on international trade, using the opening of the fixed link between Denmark and Sweden in 2000 (The Oresund Bridge) as a quasi-natural experiment. Our Synthetic Control Method (SCM) constructs a counterfactual Danish-Swedish trade relationship, which represents bilateral trade in the absence of the bridge. Evaluating actual trade against its synthetic counterpart for the period 2001-2008 shows that Danish-Swedish trade was 24.6% larger than it would have been in the absence of the bridge using our preferred specification. The result is robust to standard sensitivity checks. We supplement our analysis with a standard Difference-in-differences (DiD) estimator, which uses fixed effects. The DiD estimator yields a slightly larger trade effect of 26.7%, and is robust to a number of sensitivity analyses, including estimation at the product level. Both our SCM and DiD point to the trade-boosting effects being gradual.

Suggested Citation

  • Persson, Maria & Soegaard, Christian & Welander Tärneberg, Anna, 2022. "Building Bridges: The Effect of Major Infrastructure Development on Trade," Working Papers 2022:3, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2022_003
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    More about this item

    Keywords

    Fixed link; bridge; tunnel; transport infrastructure; trade; Synthetic Control Method; Difference-in-differences;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration

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