# **I. Motivation and Context**

The enhanced market access and increased competition facilitated by greater connectivity are critical drivers of firm dynamics and overall growth, although with theoretically ambiguous effects. On the one hand, increased connectivity through US railway expansion increased productivity and growth through market access and reallocation channels (Hornbeck and Rotenberg, 2019, 2021) and high costs of shipping to distant markets may drive size differences of plants between the United States and India (Hsieh and Klenow, <mark>2012, 2014).</mark> On the other hand, increased competition may cause local firms and industries to contract (Banerjee et al., 2012; Fujita and Krugman, 1999; Chandra and Thompson, 2000).

Ghani et al (2016) exploit a natural experiment offered by the construction of India’s Golden Quadrilateral (GQ) highway connecting the four major cities in India – Delhi, Mumbai, Chennai, and Kolkata – to document that the net effect was to expand manufacturing along the corridor. However, there is little literature on the underlying adjustment dynamics of such interventions – which types of firms generate the observed aggregate responses. Hence, this paper lifts the hood on the previous GQ findings: by creating synthetic cohorts from the rich location-coded plant-level data set, as well as constructing a true plant panel, it details <mark>how the reaction of plants to greater connectivity varies across their life cycle</mark> – <mark>young, mature and old-plant, local initial conditions, and time.</mark><sup>4</sup> <mark>Conceptually, the effects of connectivity could differ radically across these dimensions</mark> – <mark>older firms unaccustomed to competition may contract, while firms born within a more competitive context may be prepared to take advantage of new markets. Alternatively, older firms may have established access to necessary complementary factors – finance, land, or even local product markets that, in line with de Loecker et al. (2016) findings of increased markups with trade liberalization in India, may permit them to benefit from cheaper inputs, while defending their markets, thereby even strengthening their incumbent position. Cutting across all groups is the literature pioneered by A</mark> ghion et al. (2005, 2009, 2014; Cusolito, et al. 2022; Bloom et al., 2022) <mark>that stresses how the proximity to the technological frontier determines the degree to which firms may innovate to escape new competition, versus stagnating or exiting, as well as the emerging literature suggesting that firm capabilities, such as managerial or technological practices</mark>

> 4 The firm dynamics literature suggests that in the <mark>United States competition drives an “up or out” dynamic where most startups either grow or are pushed out of the market, contributing to healthy reallocation of resources to more productive firms, while the incumbents are forced to improve their capabilities (e.g., by upgrading management practices, Bloom et al. (2019), or investing in R&D, Aghion et al. 2005; 2014). A small fraction of fast-growing surviving startups contributes disproportionately to aggregate job growth (Haltiwanger et al., 2013). By comparison, developing countries such as Colombia (Eslava and Haltiwanger, 2019) and India (A</mark> kcigit et al. 2016) <mark>as well as some OECD countries (Adalet McGowan, et al. 2017) exhibit “neither up nor out” dynamics, new firms are stymied in entry and growth, and aggregate productivity and job growth are dampened</mark> (Tybout 2000; Li and Rama <mark>2015).</mark>

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