Impact of Cross-border Road Infrastructure on Trade and Investment in the Greater Mekong Subregion

This paper investigates the impact of cross-border road infrastructure on trade and foreign direct investment in the Greater Mekong Subregion using panel data from 1981 to 2003. Empirical analysis based on a gravity-model approach suggests that the development of cross-border road infrastructure has had a positive effect on intra-regional trade in major commodities with its elasticity in the range of 0.6-1.4. When the impact of domestic road infrastructure is assessed separately, it has been associated with increased trade. When cross-border and domestic road infrastructure are considered together, the former has had a positive and the latter has had a negative association, respectively, with trade. Results regarding the impact of road infrastructure on FDI flows are ambiguous, although data limitations appear to have attributed to the poor performance of these estimates. This paper was presented at the 3rd Annual Latin America/Caribbean and Asia/Pacific Economics and Business Association (LAEBA) Meeting held in Seoul, South Korea on November 16th, 2006.