Farther on down the road: transport costs, trade and urban growth in sub-Saharan Africa

How does isolation affect the economic activity of cities? Transport costs are widely considered an important barrier to local economic activity but their impact in developing countries is not well-studied. This paper investigates the role of intercity transport costs in determining the income of sub-Saharan African cities. In particular, focusing on fifteen countries whose largest city is a port, I ask how important access to that city is for the income of hinterland cities. The lack of panel data on both local economic activity and transport costs has prevented rigorous empirical investigation of this question. I fill this gap with two new datasets. Satellite data on lights at night proxy for city economic activity, and new road network data allow me to calculate the shortest route between cities. Cost per unit distance is identified by plausibly exogenous world oil prices. The results show that an oil price increase of the magnitude experienced between 2002 and 2008 induces the income of cities near a major port to increase by six percent relative to otherwise identical cities one standard deviation farther away. Combined with external estimates, this implies an elasticity of city economic activity with respect to transport costs of -0.2 at that distance. Moreover, the effect differs by the surface of roads between cities. Cities connected to the port by paved roads are chiefly affected by transport costs to the port, while cities connected to the port by unpaved roads are more affected by connections to secondary centers. JEL classification: F15, O18, R11, R12, R4