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How large are the benefits of transportation infrastructure projects, and what explains these benefits? This paper uses archival data from colonial India to investigate the impact of India's vast railroad network. Guided by four results from a general equilibrium trade model, I find that railroads: (1) decreased trade costs and interregional price gaps; (2) increased interregional and international trade; (3) increased real income levels; and (4) that a sufficient statistic for the effect of railroads on welfare in the model accounts well for the observed reduced-form impact of railroads on real income in the data. (JEL H54, L92, N75, O22, R12, R42)
Dave Donaldson (2018) studied this question.