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Abstract

The goal of this study is to improve upon the existing literature in quantifying the economic return of transportation infrastructure. Speci¯cally, I propose incorporating the changes of between-city price gaps to approximate economic bene¯ts that have been omitted by the current literature. Identifying the causal impact of new infrastructure on price gaps is complicated. To circumvent this problem, I propose to employ empirical settings in which natural experiments can be constructed to eliminate the e®ects of confounding factors. In particular, I consider two cities in northwestern China; they are connected by a railroad, the capacity of which was doubled in my sample period (1993-1996). I ¯nd strong evidences suggesting that increasing the railroad capacity signi¯cantly decreased price gaps. The change in price gaps implies a real economic return of between 12% and 24% per year.

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