DP10113 Roads and Innovation

Author(s): Ajay Agrawal, Alberto Galasso, Alexander Oettl
Publication Date: August 2014
Keyword(s): highways, innovation, regional growth, transportation
JEL(s): L91, O33, O47
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10113

We study the interplay between transportation infrastructure, knowledge flows, and innovation. Exploiting historical data on planned portions of the interstate highway system, railroads, and exploration routes as sources of exogenous variation, we estimate the effect of U.S. interstate highways on regional innovation. We find that a 10% increase in a region's stock of highways causes a 1.7% increase in regional patenting over a five-year period. We show that roads facilitate the flow of local knowledge and allow innovators to access more distant knowledge inputs. This finding suggests that transportation infrastructure may spur regional growth above and beyond the more commonly discussed agglomeration economies that are predicated on an inflow of new workers.