Agglomeration benefits and costs of investing in urban transport infrastructure

Abstract

Theory and evidence suggest that a city owes its existence to an agglomeration benefit. An investment in urban transportation infrastructure may increase this benefit. While some years ago the agglomeration benefit of urban transportation was just a vague idea, recently its size has been estimated and the idea has gained concreteness and respectability. However, the theoretical literature has emphasized the agglomeration benefit that arises through immigration and higher population, while the empirical literature has emphasized the benefit that arises from effective density at constant population. A third strand of the literature has discussed transportation of goods. We bring together these theoretical and empirical literatures, and discuss which agglomeration benefits and costs are relevant for major categories of urban passenger and freight transport investment.