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Market potential, road accessibility, and firm births: evidence from twenty years of road investment

Author

Listed:
  • Mauricio S. de Carvalho
  • Patrícia C. Melo
  • Bruno T. Rocha
  • Isabel Proença
  • João de Abreu e Silva

Abstract

This paper investigates the causal effects of road accessibility, measured by market potential, on firm births in Portuguese municipalities between 1991 and 2016, a period marked by significant road improvements. We address the endogeneity of market potential by employing instrumental variables within Poisson Pseudo-maximum Likelihood estimates with fixed effects, which we refer to as “non-local time-variant historical instruments”. Our estimated elasticities for firm births range from 1.6 to 1.9 for the 1-year interval and 1.2 to 1.3 for the 5-year interval. Additionally, we find a greater positive effect on firm births when excluding the metropolitan areas of Lisbon and Porto, which is indicative evidence of a heterogeneous spatial effect. We also find that the impact of the enlarged market potential is heterogeneous across sectors. Our results are robust to changes in model specification and the usage of alternative measures of the instruments.

Suggested Citation

  • Mauricio S. de Carvalho & Patrícia C. Melo & Bruno T. Rocha & Isabel Proença & João de Abreu e Silva, 2025. "Market potential, road accessibility, and firm births: evidence from twenty years of road investment," Working Papers REM 2025/0364, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03642025
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    More about this item

    Keywords

    road investment; firm births; market potential; Poisson Pseudo-maximum; Likelihood; instrumental variables.;
    All these keywords.

    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R39 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other
    • R49 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Other

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