Bridging the gap: how transport infrastructure reduces bilateral trade costs to fuel GDP growth

Although scholars generally recognize infrastructure development as a pivotal pillar for economic progress, a gap remains in the current literature regarding how transport infrastructure affects GDP growth. This study examines how transport infrastructure impacts GDP growth by reducing trade costs. It confirms that improving the quality of transport infrastructure lowers these costs. Specifically, a 1% improvement in the average transport infrastructure quality between an emerging and a developed economy can reduce bilateral trade costs by up to 0.71%. To estimate the net effect of changes in infrastructure on GDP growth via trade costs, we used the Computational General Equilibrium framework. The results demonstrate significant potential for enhancing GDP growth across different groups of countries based on their level of economic development (i.e. developing countries, emerging countries, and developed countries). The broader implications of transport infrastructure development for the global economy are also examined.