European highway networks, transportation costs, and regional income

Abstract

To what extent do highways increase income in the European Union? To answer the question, this paper uses detailed data on the expansion of highways in Europe between 1990 and 2020 combined with time-invariant data on more than 2.3 million roads and 1400 ferry connections. I construct a new network database of highways, roads and ferries depicting a 31-year evolution of the lowest travel times along 51 000 region-to-region routes. To tackle endogeneity, I use non-local highway improvements as a source of exogenous variation. Reduced-form estimations suggest that, through decreasing transportation costs, highways increase aggregate regional income and economic cohesion. The study determines that transportation infrastructure policies can generate substantial economic benefits and reduce income disparities between poor and rich European regions.