Connectivity Gains From Regional Integration in the Greater Mekong Subregion

ABSTRACT We provide new evidence of the effects of road construction on both domestic and international trade flows in the People's Republic of China (PRC) using customs records, satellite imageries, and transport investments data in the region, including those supported by multilateral development banks. We find that road construction helped to reduce trade costs significantly from 2000 to 2011, supporting the catch‐up of inland regions in the PRC to its coastal cities. According to our estimates, the ad valorem rate of internal trade costs decreases by 13.4%, and the ad valorem rate of international trade costs decreases, on average, by 23.8%. Using satellite and customs data, we also document that the construction of the Kunming–Bangkok Expressway led to local economic growth and higher regional specialization in accordance with comparative advantage, suggesting the role of the road infrastructure in facilitating market integration across borders in the Greater Mekong Subregion.