Competition and the Welfare Gains from Transportation Infraestructure: Evidence from the Golden Quadrilateral of India

A signi cant amount of resources is spent every year on the im provement of transportation infrastructure in developing countries. In this paper, we i nvestigate the effects of one such large project, the Golden Quadrilateral in India. We do so using a m odel of internal trade with variable markups. In contrast to the previous literature, our model i ncorporates several channels through which transportation infrastructure affects welfare. In partic ular, the model accounts for gains stemming from improvements in the allocative ef ciency of the econom y. We calibrate the model to the Indian manufacturing sector and nd real income gains of 2.7%. We al so nd that allocative ef ciency accounts for 7.4% of these gains. The importance of allocati ve ef ciency varies greatly across states, and can account for up to 18% of the overall gains in some state s. The remaining welfare gains are accounted for by changes in labor income, productive ef cie ncy, and average markups that affect states’ terms of trade