expanding external market opportunities, economic activity in open economic systems tend to concentrate near international gateways and large urban agglomerations. Further, internal trade costs limit the extent to which economically and physically distant regions can be integrated into trade and production networks. The interaction of scale economies in production and in transport make it harder—not easier—for economically distant places to enter production chains and develop local scale economies; trade tends to be vigorous between regions that are nearby. Further, while a major focus of efforts to reduce trade costs is on transportation “hardware,” these need to be complemented by “software” interventions around market structure of the transport industry and trade facilitation efforts. Further, policies that enable labor mobility can help amplify the benefits of trade and transport cost reductions. Finally, new digital technologies could potentially connect distant places; however, their adoption and use depend on the availability of complementary human capital, which is usually scarce in distant areas. The challenges in spreading growth across many regions in a country often provide the motivation for place-based policies that employ targeted interventions to create jobs and induce firms to produce in lagging regions. The chapters that follow discuss the limitations faced by lagging regions, as well as provide a heuristic framework to assess the viability of such place-based policies.
Notes 1. The OECD defines re-imported DVA as the content from any industry in the county that has been exported for the production of intermediate goods or services abroad and subsequently embodied in imports used in the production of exports by the country. 2. These results are not driven by concerns relating to reverse causality. 3. Most of the heterogeneity is driven by port versus non-port states, where internal barriers make up 17 percent and 51 percent of the total trade barrier, respectively. On average, the total trade cost is more than three times as high for non-port states as for port states. 4. Logistics costs can include barriers to market entry such as access restrictions, technical regulations, customs regulations, and cartels (Teravaninthorn and Raballand 2009). 5. The impact is also higher for domestic than for foreign cities in Africa, and weaker in politically favored and more agriculturally suitable areas. 6. Railroads induced reorganization of agricultural activities, trade integration, and structural change in nineteenth-century America (Atack and Margo 2011; Atack et al. 2010; Fajgelbaum and Redding 2018). 7. This could also be due to an overrepresentation of large positive estimates in the literature to date. 8. There are no studies reporting a single negative (or only negative) result, whereas several studies report single positive ones. 9. There is evidence that such investment decisions may be based on the possibility of winning elections, rather than on their economic contributions (Eliasson and Lundberg 2012; Odeck 1996, 2010).
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