Dennis Gaus (DIW): Highway Infrastructure and its Maintenance: Economic Effects on Regions and Firms in Germany

Abstract:
While transport infrastructure is commonly found to play an important role in the economic development of firms and regions, an increasing share of firms in Germany perceive the condition of roads as insufficient. Existing research on the economic effects of transport infrastructure maintenance is extremely scarce. The presented work addresses this gap from various perspectives.

First, the impact of several measures of agglomeration and market access on firms’ location choice is compared, including a newly developed indicator of market potential. Using a sample of 103,000 firms in a multinomial logit model, it is found that agglomeration has a significant impact, whereas transport infrastructure does not. Second, a production function based on a panel of the 401 German counties between 2007 and 2016 is estimated, accounting for local characteristics of the road network as well as spatial spillovers. It finds a positive impact of transport infrastructure capital and provides evidence that insufficient maintenance significantly slows economic growth. Third, a firm-level production function based on the data used in the first part is combined with two scenarios of closed highway bridges. It is found that a large number of closed bridges leads to a significant GDP loss and that a closure of few bridges costs close-by firms up to half of their market access.

The findings highlight the importance of transport infrastructure and its maintenance for the economic development of firms and regions and provide early evidence that insufficient highway maintenance did cut into Germany’s economic growth in recent years.