Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2022:3: Building Bridges: The Effect of Major Infrastructure Development on Trade

Maria Persson (), Christian Soegaard () and Anna Welander Tärneberg ()
Additional contact information
Maria Persson: Department of Economics, Lund University, Postal: School of Economics and Management, Box 7080, S-220 07 Lund, Sweden
Christian Soegaard: Department of Economics, University of Warwick
Anna Welander Tärneberg: Centre for Economic Demography, Lund University

Abstract: We provide evidence of a positive effect of major infrastructure development on international trade, using the opening of the fixed link between Denmark and Sweden in 2000 (The Oresund Bridge) as a quasi-natural experiment. Our Synthetic Control Method (SCM) constructs a counterfactual Danish-Swedish trade relationship, which represents bilateral trade in the absence of the bridge. Evaluating actual trade against its synthetic counterpart for the period 2001-2008 shows that Danish-Swedish trade was 24.6% larger than it would have been in the absence of the bridge using our preferred specification. The result is robust to standard sensitivity checks. We supplement our analysis with a standard Difference-in-differences (DiD) estimator, which uses fixed effects. The DiD estimator yields a slightly larger trade effect of 26.7%, and is robust to a number of sensitivity analyses, including estimation at the product level. Both our SCM and DiD point to the trade-boosting effects being gradual.

Keywords: Fixed link; bridge; tunnel; transport infrastructure; trade; Synthetic Control Method; Difference-in-differences

JEL-codes: F14; F15

Language: English

50 pages, February 8, 2022

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