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Essays on Spatial Development

  • Author(s): Rothenberg, Alexander David
  • Advisor(s): Graham, Bryan S
  • et al.
Abstract

This dissertation contains three essays on the relationship between the spatial distribution of economic activity and different types of public goods. In the first essay, I study how changes in transport infrastructure affect the location decisions of firms by examining how manufacturers responded to changes in road quality in Indonesia. Using new data, I document massive upgrades to Indonesia's highway networks during the 1990s, a period in which national transportation funding increased by 83 percent. I first show that these road improvements were accompanied by a significant dispersion of manufacturing activity, and that different industries responded in ways predicted by theory. To make better counterfactual predictions, I develop a structural model of location choice in which firms face a trade off: locating closer to demand sources requires firms to pay higher factor prices. The model predicts that some location characteristics relevant to firms are determined in equilibrium, necessitating the use of instrumental variables. I estimate a random coefficients logit model with endogenous choice characteristics and find significant differences in firms' willingness to pay for greater market access across different industrial sectors. Counterfactual policy simulations suggest that new toll roads connecting urban areas would cause a modest amount of industrial suburbanization. In contrast, upgrading rural roads would have little or no effect on equilibrium firm locations.

In the second essay, co-authored with Bryan Graham, we provide estimates of the implicit prices that consumers and firms pay for access to infrastructure in Honduras. Without credible estimates of the welfare effects of infrastructure improvements, it is impossible for policymakers to know whether the benefits of these investments outweigh their substantial costs. A major challenge with trying to understanding the welfare consequences of improved transport infrastructure is an identification problem: transport improvements are never randomly assigned. We overcome this identification program by exploiting variation from a novel natural experiment: Honduras' infestation with Panama disease. The Honduran railroad network was constructed by fruit companies to ship bananas from plantations to port cities, but because of an unpredictable outbreak of Panama disease, major plantations and their associated railway infrastructure were abandoned. We argue that outbreaks of Panama disease were extremely difficult to predict, and because of this, conditional on the railway network that existed in the 1930s and a host of observable characteristics, the areas where railway lines were abandoned were randomly assigned. We use our identification strategy to uncover the implicit prices of access to infrastructure paid by consumers and the implicit production costs paid by firms.

In the third essay, co-authored with Rachel Glennerster and Edward Miguel, we study how spatial variation in ethnic diversity, which exists largely for historical reasons, affects the provision of local public goods in rural Sierra Leone. Scholars have pointed to ethnic divisions as a leading cause of underdevelopment, due in part to their adverse effects on public goods. We investigate this issue in post-war Sierra Leone, one of the world's poorest countries. To address concerns over endogenous local ethnic composition, we use an instrumental variables strategy relying on historical census data on ethnic composition. We find that local diversity is not associated with worse public goods provision across a variety of outcomes, specifications, and diversity measures, with precisely estimated zeros. We investigate the role that leading mechanisms proposed in the literature play in generating the findings.

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