Transportation costs, agricultural productivity, and cross-country income differences

Abstract

I study the role of transportation for development by introducing regional trade and a transportation sector into the standard two-sector model of agriculture-nonagriculture. Low transport productivity can distort the allocation of resources across geographically dispersed production units within sectors and between agriculture and nonagriculture. I infer cross-country transport productivity disparities from observed domestic transport costs and transport infrastructure stocks. "Endowing" rich countries with the transport productivity of poor countries would reduce their income by 10%. Combining transport productivity disparities with disparities in nonagricultural productivity and arable land the model yields a 50% higher rich-poor income ratio than the two-sector model. © (2011) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.