Roads and the Geography of Economic Activities in Mexico

This paper estimates the impacts of road improvements on local employment structure and specialization in Mexico over the 1985-2016 period. Using geo-referenced panel data, it measures access to domestic markets from each locality as a weighted sum of surrounding populations (market access) or incomes (market potential), with weights inversely related to travel time or travel cost. Instrumenting for road placement endogeneity and addressing the recursion problem in regressions that involve access to markets, the analysis finds significant and positive causal effects of improved accessibility on employment and specialization. Heterogeneous effects are found across sectors and regions.