Highway to Success: The Impact of the Golden Quadrilateral Project for the Location and Performance of Indian Manufacturing

Abstract

We investigate the impact of the Golden Quadrilateral (GQ) highway project on the Indian organized manufacturing sector using enterprise data. The GQ project upgraded the quality and width of 5,846 km of roads in India. We use a difference-in-difference estimation strategy to compare non-nodal districts based upon their distance from the highway system. We find several positive effects for non-nodal districts located 0-10 km from the GQ network that are not present in districts 10-50 km away, most notably higher entry rates. These results are not present for districts located on another major highway system, the North-South East-West corridor (NS-EW). Improvements for portions of the NS-EW system were planned to occur at the same time as GQ but were subsequently delayed. The results also hold when using a instrumental variables framework that draws straight lines between nodal cities. Additional tests show that the GQ project's effect operates in part through a stronger sorting of land-intensive industries from nodal districts to non-nodal districts located on the GQ network. The GQ upgrades also improved allocative efficiency of activity for industries initially positioned on the GQ network. The GQ upgrades further helped spread economic activity to moderate-density districts and intermediate cities