The Impact of Improved Highways on Indian Firms

by Saugato Datta

Abstract India's Golden Quadrilateral Program aimed at improving the quality and width of existing highways connecting the four largest cities in India. This affected the quality of highways available to firms in cities that lie along the routes of the four upgraded highways, while leaving the quality of highways available to firms in other cities unaffected. This feature allows for a difference-in-difference estimation strategy, implemented using data from the 2002 and 2005 rounds of the World Bank Enterprise Surveys for India. Firms in cities affected by the Golden Quadrilateral highway project reported decreased transportation obstacles to production, reduced average stock of input inventories (by about a week's worth of production), and a higher probability of having switched the supplier who provided them with their primary input. Firms in cities where road quality did not improve displayed no significant changes.

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