2025/09/13 by Fentanes Tellez, Oscar Eduardo
#Economic Development #Infrastructure projects #Spatial Spillover Effects
paper · doi:10.60758/laer.v36i.441
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.