From Battlefield to Marketplace: Industrialization via Interregional Highway Investments in the Greater Mekong Sub-Region

This paper examines the nonlinear effects of a large-scale highway construction project in the Greater Mekong Subregion, which connects the historically conflict-affected borderlands of northern Vietnam to the country’s industrial core. Employing a market access framework with geo-coded highway network and firm-level panel data, we estimate the causal impact of improved interregional connectivity, while accounting for spillovers via production input-output linkages. To address endogeneity issues arising from non-random route placements, we construct least-cost path spanning tree networks. Our instrumental variable estimates reveal that enhanced market access spurred manufacturing firm agglomeration and employment growth, particularly in peripheral rural areas. We further explore the underlying sources of polycentric development patterns, finding pronounced effects in second-tier cities characterized by less intense competition and better access to national road networks. Our findings are robust to controls for industrial zones, underscoring the pivotal role of the upgraded highway connectivity in transforming previously marginalized regions and supporting economy-wide industrialization over the past decade.