Transport Costs, Comparative Advantage, and Agricultural Development: Evidence from Jamuna Bridge in Bangladesh

Abstract

This paper studies the effects of a large reduction in transport costs on agricultural development in a developing country with a focus on the interactions among comparative advantage and transport costs of a location, and transport intensity and value of a commodity. We extend the von Thunen model of land allocation to incorporate costly technology adoption and comparative advantage based on land productivity. The theoretical analysis predicts spatial non-linearity in cropland allocation, and produces deviation of observed cropping pattern from the efficient crop choices. A reduction in transport costs leads to adoption of productivity-enhancing inputs in the newly-connected region, and increases the share of land devoted to the high-value transport-intensive crop, with the strongest effect in the areas that are not too near or too far from the center and also have a higher land productivity in that crop. The empirical context of our analysis is the Jamuna bridge in Bangladesh, which opened in 1998, and reduced the transport costs from the poor hinterland in the north-west to the capital city Dhaka by more than 50 percent. Using sub-district level panel data, we implement doubly robust estimators in a difference-in-difference design where the comparison areas come from a region which is supposed to be connected to the capital city by the proposed, but yet to be built, Padma bridge. We find that the construction of Jamuna bridge led to increased adoption of technology (fertilizer, irrigation, green-ness and cropping intensity) and reallocation of land from low-value and non-perishable crop rice to high-value crops, pulses (non-perishable) and vegetables (perishable). The evidence indicates spatial non-linearity in the effects on cropping intensity and on the reallocation of land in areas with comparative advantage in vegetables production. For cropping intensity, the magnitude of the effect is large in the intermediate distance (130-150 km) from the bridge. In areas with relatively higher vegetables productivity, land allocated to rice declined, and in particular, land was reallocated from HYV rice to vegetables in the intermediate distance (110-150km). This improved productive efficiency by aligning the cropping pattern more closely with comparative advantage. The bridge thus led to agricultural development through technology adoption, higher cropping intensity, and by reducing the spatial mismatch between land suitability and crop choice.