Measuring Trade Cost Reductions Through a New Bridge in Mozambique: Who Benefits From Transport Infrastructure?

Abstract

We use spatial maize prices in Mozambique to measure transport cost reductions, attribute these reductions to road distance and road quality and assess to what extent producers, traders and consumers benefit. For identification we exploit a unique natural experiment, the construction of a new road bridge over the Zambezi River, which connects the north and south of Mozambique. The applied methodology allows for potentially oligopolistic traders with spatially varying mark-ups. Estimations are based on monthly maize prices, in 22 markets, for 5 years before and after the introduction of the bridge. Estimates of transport cost reductions, averaged over routes, vary from 3% to 7%, with large heterogeneity between routes, and roughly for two-third due to road distance and for one-third due to road quality. On average benefits of trade cost reductions are equally shared between traders and consumers, but for larger distances, a larger part accrues to traders. The evidence also indicates a reduction in prices in destination markets due to the bridge. Results are supported by observed transport cost data, robust for non-random bridge placement and strict source-destination rules.