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Business News/ Politics / Policy/  The mixed effects of building highways
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The mixed effects of building highways

Better connectivity to ports through highways increases economic activity: 10% less travel time to an international port leads to 1.6% higher GDP and 1% higher population

Highways have complex effects on local economies and may actually reduce economic activity in some regions. Photo: Pradeep Gaur/MintPremium
Highways have complex effects on local economies and may actually reduce economic activity in some regions. Photo: Pradeep Gaur/Mint

New Delhi: Across the world, highways are seen as drivers of economic growth. They connect cities, transport goods and help bring people together.

In reality, however, their effect on economies may not be all that straightforward.

A new paper in the Journal Of Urban Economics by Nathaniel Baum-Snow of the University of Toronto and others shows how highways can generate surprisingly complex effects on economic geography.

The authors analyse the impact of highway construction in China on local economic outcomes of 285 prefectures, covering half of the country’s land and almost 90% of its population.

In general, they find that better connectivity to ports through highways increases economic activity: 10% less travel time to an international port leads to 1.6% higher GDP (gross domestic product) and 1% higher population.

However, other effects of highways depend on a city’s regional importance. Highways generate greater economic activity for important cities in a region at the expense of other areas.

The authors show that highly populated urban centres, which are part of dense highway networks, grow faster and have higher private sector wages.

These areas also develop specializations in business services and manufacturing. In contrast, hinterlands grow more slowly, have lower wages and specialize in agriculture.

More generally, for developing countries, the authors suggest that expansion of road networks will favour the rise of regionally important cities over smaller cities, and highways designed to promote economic activity in hinterland areas may actually have the opposite effect.

Policymakers, therefore, should be cognizant of urban hierarchies while designing transport policy.

Also read: Does Investment in National Highways Help or Hurt Hinterland City Growth?

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Published: 27 Sep 2018, 09:32 AM IST
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