Can highway development promote employment growth in India?

Abstract

India has embarked on an ambitious highway development program to significantly improve interstate road transport connectivity. Between 2000 and 2015, total length of India's national highway network has nearly doubled and 4 + lane share of the national highways has increased from 2 to 20%, along with associated improvements in safety and surface quality. National highway development is considered as a tool to promote employment growth by stimulating economic activities and attracting foreign investments. As India's central government continues to increase budget allocations for national highway projects in anticipation of generating more jobs, this study empirically investigates whether past investments can be linked to employment growth. I analyze changes in non-agricultural private sector employment over a 10-year period (2003–2012) across 25 states in response to changes in the density (lane-km per unit area) of national highways, controlling for other factors affecting employment. Using a series of static (pooled ordinary least squares, random-effects and fixed-effects) and dynamic (random- and fixed-effects with first-order autoregressive or AR(1) disturbances, and system GMM or generalized method of moments) panel regressions, I find that 10% increase in national highway density in India is associated with 1–6% (depending on model specification and estimation approach) increase in private sector employment, all else equal. This paper provides first empirical evidence suggesting that India's national highway development efforts have produced positive employment benefits in the past. In addition to contributing to transportation planning scholarship, the findings are expected to inform policy-makers in India as they develop future highway investment plans aimed, in part, at economic development. This paper will also be useful to decision-makers in other developing countries with comparable policy environments.