Estimating the Impacts of Transport Corridor Development in Kazakhstan : Application of Dynamic Panel Data Models to Firm Registry Data

Large-scale transport infrastructure investment can facilitate structural transformation by changing firm behavior. Although its impact is evident over the long term, an important empirical challenge is potential endogeneity of infrastructure placement. By using the dynamic panel data regression, the paper examines the impacts of massive road corridor investment under the Nurly Zhol program in Kazakhstan. The paper takes advantage of detailed micro shipping data to capture historical changes in transport connectivity over the past 10 years. While the average travel speed has slightly increased, transport costs have been nearly halved. The estimated translog cost functions indicate that local market accessibility is the most important factor to boost firm productivity. The elasticity was 0.24 in absolute terms. Inventory is found to be a major cost factor for firms. It is found that a 10-percent improvement in accessibility to large cities, such as Astana and Almaty, could allow firms to reduce their inventory by 8.7 percent. The market accessibility is found to foster firm agglomerations, but agglomeration economies do not seem to translate into higher firm productivity. This is possibly because the Kazakh economy still lacks effective forward or backward linkages across industries