Market Accessibility and Economic Growth: Insights from a New Dimension of Inequality

We modify an AK growth model to allow for households' differential access to markets. Such local production spillovers highlight a new dimension of inequality arising through geographic remoteness and predicts divergent growth patterns among countries with poorly market-integrated households. The model is tested using an instrumental variables approach that takes advantage of the relationship between market accessibility and exogenous geographic features of the landscape as well as spatial data derived from a unique global dataset characterizing country-level market accessibility distributions. Our findings are consistent with production spillovers diminishing concavely across space before tapering off convexly in remote areas. This result suggests that the marginal household exhibiting production spillovers is located approximately five hours from the nearest market center. The policy implications are that governments could adopt pro-growth inequality-reducing policies using targeted infrastructural investments, relocation subsidies, or income redistribution mechanisms. Based on our spillover threshold estimates, these policies would be access-equality enhancing for 5.1 billion people globally and access-equality reducing for 825 million people globally. We also present findings that growth divergence occurs among countries with geographically less pervasive markets. This outcome may explain why wealthier nations exhibit divergent growth paths relative to poorer nations.