Research

We study how access to international markets shapes the local effects of external liberalization. Exploiting India’s 1990s liberalization that lowered prices in both manufacturing and agriculture, and the digitized road network, we show that input tariff declines spurred large increases in manufacturing output, firm entry, and employment, with substantially stronger effects in districts better connected to international markets. Output tariff reductions had no measurable impact. Better international access induced a sharper structural transformation within tradable sectors, with labor reallocating from agriculture to manufacturing and producer services, and increased migration from less to more internationally connected districts. We develop a quantitative spatial to understand the role of international access in the distribution of income from trade liberalization. Better international access by the median increases welfare by 9.8%. Investing in a road network targeting port connectivity significantly dampens spatial inequalities.