How infrastructure shapes comparative advantage

I show that domestic trade costs shape national comparative advantage by studying planned highway upgrades in Colombia. I build a multisectoral economic geography model with multiple shipping routes, industry linkages, external economies of scale, and trade costs that depend on both highways’ speed and ports’ usage. I discipline the model with data on customs transactions, domestic trade, and road travel times. My quantitative results show that the Ruta del Sol national highway would shift Colombia’s comparative advantage toward manufacturing. These upgrades would reduce intermediate input prices, lowering unit production costs, thus inducing an export boom. Manufacturing exports rise the most due to three channels. First, the road connects the largest manufacturing region with ports specialized in this sector. Second, manufacturing uses intensively tradable intermediate inputs, and the roadworks would increase their trade. Last, external economies of scale favor manufacturing because agglomeration forces are stronger for this sector relative to others.