Road Capacity, Domestic Trade and Regional Outcomes

What is the impact on intra-national trade and regional economic outcomes when the quality and lane-capacity of an existing paved road network is expanded significantly? We investigate this question for the case of Turkey, which undertook a large-scale public investment in roads during the 2000s. Using spatially disaggregated data on road upgrades and domestic transactions, we estimate a large positive impact of reduced inter-provincial travel times on trade as well as regional industrial sales and employment. A quantitative exercise using a workhorse model of spatial equilibrium implies a rate of return on investment around 70 percent