Highway-Induced Development: Evidence from Sri Lanka

SummaryWhen transport investments are made in relatively infrastructure poor newly industrializing regions, the consequences extend beyond growth effects to some transformational changes. This paper empirically estimates the direction and the magnitude of some of the consequent transformational changes induced via a highway project in Sri Lanka. These changes were estimated at the firm and household level via a series of production function and multivariate analyses. In light of the observed results it is likely that traditional impact studies, by failing to incorporate transformational shifts (i.e., working under the assumption of a non-changing economic structure) significantly underestimate project benefits and costs.