How do transportation infrastructure projects affect welfare? How large are the benefits of transportation infrastructure projects, and what explains these benefits?

In prominent models of international and interregional trade, reductions in trade costs will increase the level of real income in trading regions. A related body of theoretical work argues that trade cost reductions can change the volatility of real income. This is a second welfare effect that may be especially important in predominantly agricultural, low-income economies, but the theoretical predictions from this work are less clear-cut. Unfortunately, despite an emphasis on reducing trade costs in both economic theory and contemporary aid efforts, we lack a rigorous empirical understanding of the extent to which transportation infrastructure projects actually reduce the costs of trading, and how the resulting trade cost reductions affect welfare.

To shed new light on these questions, this project collects archival data from colonial India and uses it to estimate the impact of India's vast railroad network. This project exploits one of history's great transportation infrastructure projects the vast network of railroads built in colonial India (India, Pakistan and Bangladesh) to make important contributions to our understanding of transportation infrastructure improvements.