Highway to success in India

Transport investments within cities and across cities are essential for economic growth, job creation, and poverty reduction. Beyond simply facilitating cheaper and more efficient movements of goods, people, and ideas within cities, transport affects the distribution of economic activity across cities. Many researchers have shown that transport investment plays an important role in spatial development and urbanisation. Henderson et al. (2001) find that industrial decentralisation in South Korea is attributable to massive transport and communications infrastructure investments. Baum-Snow et al. (2012) show that transport infrastructure aided the decentralisation of industrial production and population in Chinese cities. Several other studies find positive economic effects in 'non-nodal' locations due to transportation infrastructure in China (e.g. Banerjee et al. 2012, Roberts et al. 2012). Desmet et al. (2012) have argued that manufacturing in India is slowly moving away from high-density districts to districts that are less congested, allowing industrial activity to spread more equally across space.

In a recent paper (Ghani et al, 2013) we examine the impact of the Golden Quadrilateral project, a large-scale highway construction and improvement project in India (Datta 2011). The Golden Quadrilateral project sought to improve the connection between four major 'nodal' cities in India: Delhi, Mumbai, Chennai and Kolkata. It is the fifth-longest highway in the world. Road transport is the principal mode of movement of goods and people in India, accounting for 65% of freight movement and 80% of passenger traffic. While national highways constitute about 1.7% of the road network, they carry more than 40% of the total traffic volume. The massive project began in 2001, was two-thirds complete by 2005, and was more or less finished by 2007.

We examine how proximity to the Golden Quadrilateral in non-nodal districts affected the organisation of manufacturing activity using establishment counts, employment, and output levels, especially among new firms establishing plants for the first time, thereby making location choice decisions before or after the upgrades. We also examine industry-level sorting and the extent to which intermediate-sized cities in India are becoming more attractive for manufacturing plants. Our core sample contains plant-level data from 312 districts. This accounts for over 90% of plants, employment and output in the manufacturing sector.

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