Bridge to Bigpush or Backwash? Market Integration, Reallocation, and Productivity Effects of Jamuna Bridge in Bangladesh

This paper uses a quasi-experimental study of a major bridge construction in Bangladesh to understand the effects of a large reduction in trade costs on the pattern of structural change and agricultural productivity. We develop a spatial general equilibrium model with a core and two hinterlands at the opposite sides separated by rivers and allow for productivity gains through agglomeration in both agriculture and manufacturing sectors. The model yields insights different from the standard core-periphery and trade models:(i) the newly connected hinterland may experience higher population density and agricultural productivity despite significant de-industrialization, (ii) even with increased specialization in agriculture, the share of agricultural employment may decline when inter-regional trade requires local services (e.g. processing and trading), and (iii) the strongest effects on employment structure are felt not necessarily in the areas next to the bridge but in the areas that move out of autarky as a result of the bridge. In empirical estimation, we use doubly robust estimators in a difference-in-difference design where the comparison hinterland comes from a region which was supposed to be connected to the core (capital city) by the proposed, but not yet constructed, Padma bridge due to idiosyncratic political factors. In the short run, we find significant labor reallocation from agriculture to services in the connected hinterland, but no perceptible effects on the employment share of manufacturing, population density, and night-lights. In the long run, the labor share of manufacturing declines in the treatment hinterland and increases in the core, consistent with the de-industrialization effect emphasized in core-periphery models. However, there are significant positive effects on population density, night light luminosity and agricultural yields in the treatment hinterland which contradict backwash effects of the bridge. The effects of the bridge on intersectoral labor allocation are spatially ...