Farther on down the Road: Transport Costs, Trade and Urban Growth in Sub-Saharan Africa

TLDR: It is found that an oil price increase of the magnitude experienced between 2002 and 2008 induces the income of cities near that port to increase by 7 percent relative to otherwise identical cities 500 kilometers farther away, which implies an elasticity of city economic activity with respect to transport costs.

Abstract: Transport costs are widely considered an important barrier to local economic activity but their impact in developing countries is not well-studied. This paper investigates the role of inter-city transport costs in determining the income of Sub-Saharan African cities, using two new data sources. Specifically, it asks how important access to a large port city is for the income of hinterland cities in 15 countries. Satellite data on lights at night proxy for city economic activity, and shortest routes between cities are calculated using new road network data. Cost per unit of distance is identified by world oil prices. The results show that an oil price increase of the magnitude experienced between 2002 and 2008 induces the income of cities near a major port to increase by 6 percent relative to otherwise identical cities 500 kilometers farther away. Cities connected to the port by paved roads are chiefly affected by transport costs to the port, while cities connected to the port by unpaved roads are more affected by connections to secondary centers. These are important findings for economic development in Sub-Saharan Africa since the majority of its population growth over the next few decades is expected to be in urban areas.