The wider economic benefits of transport corridors: a policy framework and illustrative application to the China-Pakistan Economic Corridor

Abstract

This paper discusses a new policy framework to appraise proposals of large transport infrastructure investments—transport corridors—and applies it to the China-Pakistan Economic Corridor (CPEC). The framework emphasizes the need to focus the appraisal of transport corridor investments on outcomes that go beyond savings in travel time and reductions in vehicle operating costs, and even beyond intermediate outcomes such as trade and agglomeration. The focus should be on the ultimate benefits that households along a corridor, and, more generally, society, can attain—such as increased consumption, better jobs, and greater equity. It also emphasizes the need to identify and manage trade-offs. For example, household income could increase at the expense of environmental degradation. Or alongside winners, a corridor, may also create many losers. The appraisal framework is applied to Pakistan’s portion of the CPEC, using reduced-form econometrics and allowing the impacts of transport corridors to depend on initial market conditions and institutions. The simulations suggest important heterogeneous impacts of CPEC among districts in Pakistan stemming from the variations in restrictions on land use and in secondary education across connected districts.