To Be Connected or Not to Be Connected? The Role of Long-Haul Economies

We investigate what regions are the winners and losers from large transportation infrastructure improvements. We argue that long-haul economies - implying that the marginal transportation cost decreases with distance - play a pivotal role in understanding the location choices of firms. Using data from Japan and the Netherlands, we first establish that long-haul economies are an important feature of modern transportation networks. Then, we develop a simple model to show that improvements in transportation infrastructure have non-trivial impacts on the location choices of firms. While these investments are often beneficial to large regions, they may be detrimental to small intermediate regions, implying job losses. Using data on Japan's Shinkansen, we confirm that 'in-between' municipalities that are connected to the HSR witness a sizable decrease in employment.