Abstract
The objective of this study is to provide microeconometric evidence on the welfare gain of transport infrastructure investments. Speciflcally, I consider an investment in China that doubles the tracks of a one-thousand-mile-long railroad in 1994. This provides a quasi-experimental setting: the expansion in rail capacity only afiects the trade of goods in one direction. I flrst estimate the impact of this investment on interregional price difierences, flnding that they are reduced by about thirty percent following the investment. I then derive a (partial equilibrium) measure transforming the estimated shrinkage of price gaps into welfare estimates. I flnd that the internal rate of (social) return of the investment may signiflcantly exceed the costs of capital in China.
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