From periphery to core: Measuring agglomeration effects using high-speed rail

Abstract

We analyze the economic impact of the German high-speed rail (HSR) connecting Cologne and Frankfurt, which provides plausibly exogenous variation in access to surrounding economic mass. We find a causal effect of about 8.5% on average of the HSR on the GDP of three counties with intermediate stops. We make further use of the variation in bilateral transport costs between all counties in our study area induced by the HSR to identify the strength and spatial scope of agglomeration forces. Our most careful estimate points to an elasticity of output with respect to market potential of 12.5%. The strength of the spillover declines by 50% every 30 min of travel time, diminishing to 1% after about 200 min. Our results further imply an elasticity of perworker output with respect to economic density of 3.8%, although the effects seem driven by worker and firm selection.