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The effects of transport infrastructure on regional economic development: A simulated spatial overlapping generations model with heterogenous skill


  • Tikoudis, Ioannis

    () (Royal Institute of Technology)

  • Sundberg, Marcus

    () (Royal Institute of Technology)

  • Karlström, Anders

    () (Royal Institute of Technology)


As a result of public investment, lower freight transport costs tend to translate into lower local price indices and are associated with equilibria characterized by higher output and consumption. In this paper we investigate an additional effect to these trade gains, namely the gains from better spatial matching in the labor market. We simulate a two-region Spatial OLG model in which agents are heterogeneous in terms of skill. Under repeated simulation experiments, we show that, for high household relocation frictions, the possibility of interregional commuting can be seen as an alternative way to realize the potential matching effects. For high levels of skill heterogeneity and a plausible parametric input, a steady state in which labor matching is realized through commuting can be associated with up to 10% higher per capita output, compared to the one with homogenous labor, in which only gains from trade are feasible.

Suggested Citation

  • Tikoudis, Ioannis & Sundberg, Marcus & Karlström, Anders, 2012. "The effects of transport infrastructure on regional economic development: A simulated spatial overlapping generations model with heterogenous skill," The Journal of Transport and Land Use, Center for Transportation Studies, University of Minnesota, vol. 5(2), pages 77-101.
  • Handle: RePEc:ris:jtralu:0084

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    References listed on IDEAS

    1. David Philip Mcarthur & Inge Thorsen & Jan Ubøe, 2010. "A Micro-Simulation Approach to Modelling Spatial Unemployment Disparities," Growth and Change, Wiley Blackwell, vol. 41(3), pages 374-402.
    2. Rietveld, Piet, 1989. "Infrastructure and Regional Development: A Survey of Multiregional Economic Models," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 23(4), pages 255-274.
    3. Michel, Philippe & de la Croix, David, 2000. "Myopic and perfect foresight in the OLG model," Economics Letters, Elsevier, vol. 67(1), pages 53-60, April.
    4. Rioja, Felix K., 1999. "Productiveness and welfare implications of public infrastructure: a dynamic two-sector general equilibrium analysis," Journal of Development Economics, Elsevier, vol. 58(2), pages 387-404, April.
    5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    6. Abdel-Rahman, Hesham M. & Wang, Ping, 1995. "Toward a general-equilibrium theory of a core-periphery system of cities," Regional Science and Urban Economics, Elsevier, vol. 25(4), pages 529-546, August.
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    More about this item


    Economic development; Trade; Freight transportation; Regional economy;

    JEL classification:

    • R40 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - General


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