The economic effects of transportation infrastructure on output and productivity
Creators: name: Barzin, Samira
Publisher: name: Imperial College London
Year: 2017

description: The overarching theme of this dissertation is the investigation of the relevance of transportation infrastructure for the development and performance of the private sector. I analyse this relationship for both firms located in developing and developed countries to highlight similarities and disparities of the importance of transportation networks for the performance of the firms. For the examination of this relationship, I have chosen two countries that differ substantially on various economic and social factors and their levels of transportation infrastructure: Colombia and Germany. Research on developing countries is often limited by the absence of reliable panel data, this especially applies to data on firms. I propose the use of aggregated Colombian firm data to identify a pseudo-panel of manufacturing firms that can be used to simulate the analysis of firm-level effects. I provide further validity for this method by conducting a Monte Carlo simulation, which provides support for the appropriateness of pseudo-panels in the context of firm-level investigations and further highlights the particular suitability of different panel data estimation techniques for it. The identified pseudo-panel is employed for the subsequent analysis. The elasticity of highway infrastructure on the growth of a firm’s output is significant and positive, however the identified magnitude of this effect of ap- proximately 0.13 to 0.15 is substantially larger than the average effect identified in similar studies for developed countries, hence implying the crucial importance of transportation infrastructure for economic growth in developing countries. The results further show a time lag of this effect of one year, suggesting that firms’ production processes require time to adjust to the transportation infrastructure changes. These results are robust to the inclusion of additional controls and alternative transportation variables used. An additional investigation reveals thattransportation benefits particularly accrue to firms of the heavy industries. A further analysis highlights the role of transportation infrastructure within the context of spatial heterogeneity of this effect across regions. The results indicate the benefits of transportation infrastructure predominantly only accrue to firms located in relatively stronger regions with reported output elasticities of around 0.15. Additional analyses provide no support for the importance of transportation for fostering economic convergence in Colombia. This thesis contains furthermore an examination of the role of the German highway network in influencing firm-level productivity patterns. This work uses German firm-level data and relies on the use of the Levinsohn-Petrin methodology and historical transportation data to conduct a two-step productivity estimation. I further derive two different transportation measurements to investigate the importance of transportation spillover effects. In line with previous studies of the German economic geography, I find spatial differences in productivity levels where larger levels are predominantly found in the districts of the South and West of the country, and lower productivity levels are identified throughout the Eastern districts. The investigation of the whole country identifies positive and significant productivity elasticities of highways where estimates range from 0.03 to 0.07 and 0.061 to 0.23 depending on the choice of method, controls and highway variable. This represents an increase of the firm’s productivity of 0.03 to 0.0.7 per cent following a 1 per cent increase in highways, or alternatively an increase of 0.061 to 0.23 when highway spillover effects are accounted for. This indicates that firms derive benefits from local highways and those located in the surrounding regions and the remainder of the country which points towards large spillover effects. The results further show that while highways are important for a firm’s productivity growth, alternative productivity enhancing factor, predominantly the amount to skilled labour, present relatively more important productivity determinants. The investigation of subsamples designed to capture districts with relatively high and low highway levels points towards diminishing returns of transportation infrastructure and satiation effects. While no consistent differences in the estimated effects could be identified across districts of the Eastern and Western states and for those districts which have recently received new highways under the “Transportation Projects German Unity”, further disaggregate results show that highways particularly benefited firms in rural districts in the West and those located in urban districts in the East. Overall, the robustness of the results of this chapter requires further analyses, however they tentatively point towards productivity enhancing benefits of transportation and additionally reveal a large degree of heterogeneity of this effect.