Chapter 20. Transportation Costs and the Spatial Organization of Economic Activity

This chapter surveys the theoretical and empirical literature on the relationship between the spatial distribution of economic activity and transportation costs. We develop a multiregion model of economic geography that we use to understand the general equilibrium implications of transportation infrastructure improvements within and between locations for wages, population, trade, and industry composition. Guided by the predictions of this model, we review the empirical literature on the effects of transportation infrastructure improvements on economic development, paying particular attention to the use of exogenous sources of variation in the construction of transportation infrastructure. We examine evidence from different spatial scales, between and within cities. We outline a variety of areas for further research, including distinguishing reallocation from growth and dynamics.