Disconnected roads: how transport infrastructure falls short in southern Mexico

Abstract

This paper studies the effectiveness of transport infrastructure in promoting development in lagging regions. Using detailed road and census data combined with a spatial general equilibrium model calibrated to Mexico, we show that infrastructure investments in poorer areas are more effective when they enhance connectivity to the national network and are paired with productivity improvements. Between 2004 and 2019, Mexico’s southern states received over one-fourth of all new paved roads but saw limited connectivity gains, as investments focused on low-speed, locally administered roads that primarily connected low-productivity municipalities within states. While the national road expansion raised national real income by 1.0% and welfare by 1.7%, the income elasticity with respect to new roads in the South was only half that of the North. To highlight the critical role of local economic conditions in shaping these returns to new transport infrastructure, we show that a counterfactual 2,200km highway in the South generates only one-third the welfare gains of an equivalent highway in the North—unless accompanied by a 5.5% productivity boost.