Melitz meets Lewis: The impacts of roads on structural transformation and businesses
Document Type
Journal Article
Role
Author
Published In
Journal of International Economics
Volume
162
Article Number
104310
Publication Date
8-2026
Abstract
This paper examines the impact of roads on structural transformation and business composition both empirically and theoretically. Empirically, we find that major highway programs in India and China led to declines in the number of businesses where structural transformation is weak, and increases where it is strong. We develop a two-sector model of regional trade with endogenous firm entry that highlights two opposing forces. Ceteris paribus, lower trade costs in non-agriculture lead to fewer firms, but cheaper agricultural imports release labor from local agricultural production, leading to more firms. We show that the model-simulated outcomes reasonably replicate the empirical results, and that more rapid agricultural productivity growth in China differentiates the two countries.
Keywords
road infrastructure, regional development, China, India
Suggested Citation
Kaboski, J.P., Lu, W.J., Qian, Wei (Economics), & Ren, L. (2026). "Melitz meets Lewis: The impacts of roads on structural transformation and businesses." Journal of International Economics, 162. Available:
