Gabriel Felbermayr (Ifo Institute)

Trade and the Spatial Distribution of Transport Infrastructure (joint with A. Tarasov)

Abstract

This paper provides an analytical framework in which governments decide non-cooperatively on transport infrastructure investments across continuous space. Embed-ding this choice into a model of international and intranational trade, the model shows that the equilibrium investment schedule features not only global underinvestment, but also excessive spatial variation. As a consequence, transporting goods across borders is more costly than within countries. Simulations suggest that this mechanism explains up to half of the border effect measured in the empirical literature. Empirical evidence from trade flows within the European Union confirms this prediction. The framework also sheds light on the welfare costs of second best investment schedules or on private public partnerships in infrastructure provision. Finally, it can be used to study how intercontinental trade affects the intracontinental allocation of investment spending, the size of the border effect, and economic inequality.