Abstract
This chapter discusses the theoretical literature that has analyzed the role of transport infrastructure investments on economic activity. Exogenous and endogenous growth models suggest that such investments can affect growth and economic activity by improving the productivity of capital and labor. A more detailed analysis is provided by the New Economic Geography (NEG) literature that investigates the transmission mechanisms and processes activated by agents' responses to monetary and time savings associated with improvements in the transportation system. In NEG models, changes in trade/transport costs affect the balancing between agglomeration and dispersion forces. This determines trade and location choices made by firms and workers and the distribution of economic activity across space. In particular, more recent models have introduced localized knowledge spillovers that generate a cumulative causation process that sustains endogenous growth through a reduction in the cost of innovation.
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