Are new highways beneficial for regional economic development?

In 2007, a new 50-kilometer section of highway connecting Prague and Hradec Králové was opened to the public. This notably reduced travel time between these two cities by approximately 15 minutes. Employing a rigorous analytical approach that combines the difference-in-differences methodology based on the synthetic control method with panel regression techniques, this study investigates the impact of this highway expansion on regional economic dynamics, namely the pace of firm establishments. According to our results, the faster travel facilitated by the new highway had the consequence of slowing the pace of firm creation in municipalities lying close to the highway, which were able to benefit from faster travel times. We expect that the introduction of the new highway segment amplified the gravitational pull of major urban centers, attracting economic activity away from the surrounding regions.