All aboard: The aggregate effects of port development

Transport infrastructure facilitates the fast flow of goods and people across space, but it also occupies extensive amounts of land. This may drive up land rents and crowd out other economic activity. Using the introduction of containerized shipping - a relatively land-intensive technology -, we find an important role for this crowding-out effect. At the local level, we find that seaport development increases city population by making a city more attractive, but this well-known market access effect is offset by the crowding-out mechanism. At the aggregate level, while we estimate overall welfare gains from containerization, our quantitative model featuring endogenous port development also implies i) sizeable welfare costs associated with the increased land-usage of ports, and ii) sizeable gains from cities' endogenous specialization across port- and non-port activities. These mechanisms are particularly important for targeted port development, which we illustrate by evaluating the effects of the Maritime Silk Road.