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Melitz Meets Lewis: The Impacts of Roads on Structural Transformation and Businesses

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Listed:
  • Joseph P. Kaboski
  • Jianyu Lu
  • Wei Qian
  • Lixia Ren

Abstract

This paper examines the impact of roads on structural transformation and business composition theoretically and empirically. We develop a two-sector model of regional trade with endogenous firm entry that highlights two opposing forces. \textit{Ceteris paribus} lower trade costs in non-agriculture lead to fewer firms, but cheaper agricultural imports releases labor from local agricultural production leading to more firms. Using major highway programs in India and China, we find results broadly consistent with the theory, with declines in the number of businesses where structural transformation is weak, and increases where it is strong.

Suggested Citation

  • Joseph P. Kaboski & Jianyu Lu & Wei Qian & Lixia Ren, 2024. "Melitz Meets Lewis: The Impacts of Roads on Structural Transformation and Businesses," NBER Working Papers 32448, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32448
    Note: DEV EFG
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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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