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Trade and the Spatial Distribution of Transport Infrastructure

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  • Tarasov, Alexander
  • Felbermayr, Gabriel

Abstract

This paper endogenizes the spatial distribution of infrastructure investment and transportation costs. Transportation costs between two addresses depend on cumulative infrastructure investment. In a continuous space setting with several independent countries or regions, consumers demand domestic and foreign goods, while central planners care only about welfare of their own constituencies. The equilibrium of the game between countries features under-investment and excessive spatial variation. The distribution of infrastructure is skewed towards central regions, rationalizing the non-linear trade-impeding role of distance in empirical gravity models and the so called border puzzle. We find that the endogenous allocation of infrastructure investment magnifies small discrete border frictions and creates `border regions' within countries. Privatizing infrastructure provision does not solve the problem. French data on transportation costs and an empirical gravity model for trade between US states motivate and corroborate our theory.

Suggested Citation

  • Tarasov, Alexander & Felbermayr, Gabriel, 2014. "Trade and the Spatial Distribution of Transport Infrastructure," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100511, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc14:100511
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    Cited by:

    1. Gabriel Felbermayr & Jasmin Katrin Gröschl & Thomas Steinwachs, 2016. "Handelseffekte von Grenzkontrollen," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 69(05), pages 18-27, March.
    2. Pablo D. Fajgelbaum & Edouard Schaal, 2017. "Optimal Transport Networks in Spatial Equilibrium," NBER Working Papers 23200, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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