Optimal Investments in Africa's Road Network – Sebastian Krantz

Speaker

Sebastian Krantz (Kiel Institute)

Abstract

This paper characterizes economically optimal investments into Africa's road network in partial and general equilibrium - based on a detailed account of the road network, road construction costs, frictions in cross-border trading, and economic geography. Drawing from data on 144 million trans-continental routes, it first assesses local and global network efficiency and market access. It then derives a reduced network connecting 453 large cities and ports along the fastest routes, devises an algorithm to propose high-value new links, and analyzes the quality of existing links and link-level construction/upgrading costs. Subsequently, it computes market-access-maximizing investments in partial equilibrium and conducts cost-benefit analysis for individual links and several investment packages of up to 61 billion USD'15. Using a spatial economic model and global optimization over the space of networks, it finally considers welfare-maximizing investments in spatial equilibrium for 50 and 100-billion USD'15 budgets. Findings imply that cross-border frictions and trade elasticities significantly shape optimal road investments. Reducing frictions yields the greatest benefits, followed by road upgrades and new construction. Sequencing matters, as reduced frictions generally increase investment returns. Returns to upgrading key links are large, even under current frictions.

Room

Lecture Hall (A-032)