Urban Growth and Transportation

Abstract

We estimate the effects of interstate highways on the growth of U.S. cities between 1983 and 2003. We find that a 10% increase in a city's initial stock of highways causes about a 1 ∙5% increase in its employment over this 20 year period. To estimate a structural model of urban growth and transportation, we rely on an instrumental variables estimation that uses a 1947 plan of the interstate highway system, an 1898 map of railroads, and maps of the early explorations of the U.S. as instruments for 1983 highways. We investigate the role of interstate highways in the growth of U.S. cities. Our investigation is in three parts. In the first, we develop a simple structural model describing the joint evolution of highways and employment in cities. In the second, we develop an instrumental variables strategy that allows us to identify key parameters of our structural model. We are also able to provide out of sample evidence for the validity of our estimates and for the central assumptions of our model. In the third, we use our estimates to assess counterfactual transportation policies. We find that a 10% increase in a city's stock of (interstate) highways causes about a 1 ∙5% increase in its employment over 20 years and that an additional kilometre of highway allocated to a city at random is associated with a larger increase in employment or population than is a road assigned to a city by the prevailing political process. Our results also suggest that too many new highways were built between 1983 and 2003. These findings are important for three reasons. First, transportation generally, and infrastruc- ture in particular are large segments of the economy. The median U.S. household devotes about 18% of its income to road transportation while all levels of government together spend another 200 billion dollars annually. Overall, the value of capital stock associated with road transporta- tion in the U.S. tops 5 trillion dollars ( United States Bureau of Transportation Statistics, 2007, 2010). Given the magnitude of transportation expenditures, it is important that the impact of these expenditures on economic growth be carefully evaluated and not assessed on the basis of the claims of advocacy groups. Our analysis provides a basis for assessing whether these resources are well allocated. Our results also provide useful guidance to policy makers charged with planning cities. Since changes in a city's transportation infrastructure cause changes to the city's employment, new transportation infrastructure causes complementary changes in the demand for public utilities and schools. Our results provide a basis for estimating the magnitude of such changes. Finally, this research is important to furthering our understanding of how cities operate and grow. Transportation costs are among the most fundamental quantities in theoretical models