Disconnected roads: How Transport InfrastructureFalls Short in Southern Mexico
DOI:
https://doi.org/10.60758/laer.v36i.441Keywords:
Economic Development, Spatial Spillover Effects, Infrastructure projectsAbstract
This paper studies the effectiveness of new transport infrastructure in promoting economic development in lagging regions. Using detailed data and a spatial model calibrated to Mexico, we argue that infrastructure investments in poorer regions are effective only if they improve connectivity to the national network and are paired with productivity-enhancing policies. We provide evidence that, despite receiving over one-third of new paved roads and highways between 2004 and 2019, Mexico's southern states saw limited gains in network connectivity due to low-speed, locally administered, toll-free roads primarily connecting municipalities within the same state and low-productivity areas. By calibrating the Allen and Arkolakis (2014) model, we show that the road network expansion (2004-2019) increased aggregate real income by 1.0% and welfare by 1.7% in 2019, with southern states receiving twice the infrastructure but achieving similar income gains to the north. Finally, we propose a hypothetical 2,200-kilometer highway in the south and show that it would generate smaller welfare gains than a similar highway in the north, unless paired with a 5.5% productivity boost in municipalities along the road.
References
• Ahlfeldt, G. M., Redding, S. J., Sturm, D. M., & Wolf, N. (2015). The economics of density: Evidence from the Berlin Wall. Econometrica, 83(6), 2127–2189.
• Allen, T., & Arkolakis, C. (2014). Trade and the topography of the spatial economy. The Quarterly Journal of Economics, 129(3), 1085–1140.
• Allen, T., & Arkolakis, C. (2022). The welfare effects of transportation infrastructure improvements. The Review of Economic Studies, 89(6), 2911–2957.
• Asher, S., Garg, T., & Novosad, P. (2020). The ecological impact of transportation infrastructure. The Economic Journal, 130(629), 1173–1199.
• Banerjee, A., Duflo, E., & Qian, N. (2020). On the road: Access to transportation infrastructure and economic growth in China. Journal of Development Economics, 145, 102442.
• Blankespoor, B., Bougna, T., Garduno Rivera, R., & Selod, H. (2017). Roads and the geography of economic activities in Mexico. World Bank Policy Research Working Paper (8226).
• Boudot-Reddy, C., & Butler, A. (2024). Paving the road to re-election. Journal of Public Economics, 239, 105228.
• Bryan, G., & Morten, M. (2019). The aggregate productivity effects of internal migration: Evidence from Indonesia. Journal of Political Economy, 127(5), 2229–2268.
• Busso, M., & Fentanes, O. (2024). Building up local productivity: Infrastructure and firm dynamics in Mexico. Technical report, Inter-American Development Bank.
• Chaney, T. (2018). The gravity equation in international trade: An explanation. Journal of Political Economy, 126(1), 150–177.
• Combes, P.-P., Duranton, G., Gobillon, L., Puga, D., & Roux, S. (2012). The productivity advantages of large cities: Distinguishing agglomeration from firm selection. Econometrica, 80(6), 2543–2594.
• Dávila, E., Kessel, G., & Levy, S. (2002). El sur también existe: un ensayo sobre el desarrollo regional de México. Economía Mexicana Nueva Época, XI(2), 205–260.
• Dijkstra, E. (1959). A note on two problems in connexion with graphs. Numerische Mathematik, 1(1), 269–271.
• Disdier, A.-C., & Head, K. (2008). The puzzling persistence of the distance effect on bilateral trade. The Review of Economics and Statistics, 90(1), 37–48.
• Donaldson, D. (2018). Railroads of the Raj: Estimating the impact of transportation infrastructure. American Economic Review, 108(4-5), 899–934.
• Donovan, S., de Graaff, T., de Groot, H. L., & Koopmans, C. C. (2024). Unraveling urban advantages—a meta-analysis of agglomeration economies. Journal of Economic Surveys, 38(1), 168–200.
• Fentanes, O., & Levy, S. (2024). Dysfunctional firm dynamics and Mexico’s dismal productivity performance. Economía LACEA Journal, 23(1).
• Gaubert, C. (2018). Firm sorting and agglomeration. American Economic Review, 108(11), 3117–3153.
• Hausmann, R., & Rodrik, D. (2003). Economic development as self-discovery. Journal of Development Economics, 72(2), 603–633.
• Head, K., & Mayer, T. (2014). Gravity equations: Workhorse, toolkit, and cookbook. In Handbook of International Economics (Vol. 4, pp. 131–195). Elsevier.
• Levy, S. (2007). Progress against poverty: Sustaining Mexico’s Progresa-Oportunidades program. Rowman & Littlefield.
• Lindenlaub, I. (2017). Sorting multidimensional types: Theory and application. The Review of Economic Studies, 84(2), 718–789.
• Luca, D., Terrero-Davila, J., Stein, J., & Lee, N. (2023). Progressive cities: Urban–rural polarization of social values and economic development around the world. Urban Studies, 60(12), 2329–2350.
• Morten, M., & Oliveira, J. (2018). The effects of roads on trade and migration: Evidence from a planned capital city. NBER Working Paper (22158), 1–64.
• OECD (2020). Transport Bridging Divides.
• Pérez, F., & Sandoval, A. (2017). Short-run market access and the construction of better transportation infrastructure in Mexico. Economía, 18(1), 225–250.
• Puga, D. (2010). The magnitude and causes of agglomeration economies. Journal of Regional Science, 50(1), 203–219.
• Redding, S. J. (2016). Goods trade, factor mobility and welfare. Journal of International Economics, 101, 148–167.
• Redding, S. J., & Turner, M. A. (2015). Transportation costs and the spatial organization of economic activity. In Handbook of Regional and Urban Economics (Vol. 5, pp. 1339–1398).
• Rodrik, D. (2004). Industrial policy for the twenty-first century. Harvard University.
• Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies. In Handbook of Regional and Urban Economics (Vol. 4, pp. 2119–2171). Elsevier.
• Simonovska, I., & Waugh, M. E. (2014). The elasticity of trade: Estimates and evidence. Journal of International Economics, 92(1), 34–50.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Oscar Eduardo Fentanes Tellez
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
LAER Copyright and License
Authors submitting articles to Latin American Economic Review (LAER), automatically grant this journal a license to publish. Copyright of all published material remains with the authors, who can reuse it in future work without needing to make reference to LAER. Similarly, any other contribution of material to the website (for example text, photographs, graphics, video or audio) automatically grants us a right to publish. Copyright, however, remains with the author(s).
Authors release their work under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). This license allows anyone to copy, distribute and transmit the work, provided the use has no derivatives, is non-commercial and appropriate credit to the author(s) is given. (If you remix, transform, or build upon the material, you may not distribute the modified material.)
A human-readable summary of the licence:
https://creativecommons.org/licenses/by-nc-nd/4.0/
Full legal text: