Annex 7A. Using Spatial General Equilibrium Models to Quantify the Indirect Effects of Highway Corridors in Africa

as a heuristic tool that can help policy makers examine the dimensions that should be taken into account when assessing place-based policies.

For transport corridors, it is critical to understand the mechanisms through which the corridor may bring about change (quantity effects) and look beyond immediate or direct effects of the transport corridor to induced changes in private sector behavior throughout the economy. It is also important to attribute value changes accurately, essentially by thinking clearly about opportunity costs, the value of resources in alternative uses, and the market failures and inefficiencies that motivate the policy intervention.

In the context of special economic zones, the following factors are important in understanding differences in performance: geographic location, reliable infrastructure, connections with local universities, and high-skill exports. While some interventions such as SEZs are often spatially distant from the built-up area of existing cities, their viability often depends on linkages with cities. Further, poorly located SEZs tend to aggravate fiscal risks for the municipalities on which they depend.

Efforts to leverage complementarities between transport, land use, and housing policies are central to managing urban congestion. Piecemeal interventions tend to exacerbate congestion and fragment urban labor markets, further dampening the potential for agglomeration economies.

Annex 7A. Using Spatial General Equilibrium Models to Quantify the Indirect Effects of Highway Corridors in Africa

Two recent studies use spatial general equilibrium models to quantify the indirect effects of highways corridors in West Africa and the Horn of Africa. Lebrand (2021) reviews the potential benefits of developing the Dakar-Lagos highway corridor between Dakar, Senegal, and Lagos, Nigeria, which crosses most coastal West African countries. The Dakar-Lagos corridor is part of the Trans–West African Coastal Highway, which links 12 West African coastal nations, from Mauritania in the northwest to Nigeria in the east, as well as two landlocked countries, Burkina Faso and Mali, with feeder roads. It mostly follows the coastline along more than 4,000 kilometers and connects the capitals of the 14 countries.

The expected economic impacts of the Lagos-Dakar highway corridor would differ across countries. Along the northern section between Dakar and Abidjan, Côte d’Ivoire, road improvements are expected to enable the transit of agricultural production from Senegal to neighboring countries The Gambia, Guinea Bissau, and Guinea. In Liberia, the corridor aims to reduce the isolation of rural areas and improve integration at the Côte d’Ivoire border. The southern part of the corridor between Abidjan and Lagos connects the most densely populated and economically active parts of the subregion and interconnects with a rail network, major ports,

and airports. It aims at strengthening regional trade and integration in West Africa by linking the hinterlands of the different countries, including providing landlocked countries with access to seaports.

Using simulations from the spatial general equilibrium model, Lebrand (2021) argues that the effects of the Dakar-Lagos highway corridor are mixed, given the disparities within countries. For most countries, increasing regional integration through trade and transport investments would reduce spatial disparities in both nominal and real wages. Disparities are expected to increase, however, in a few countries, such as Guinea-Bissau and Sierra Leone, following higher regional integration. The change in market access depends on two factors: the reduction in transport costs per origindestination pair, and the locations to which transport leads. Given that locations differ in population and purchasing power, the economic impacts of improving roads depend on where they lead. Improving access to a populated and better-off location would increase sales opportunities more for local firms than improving access to a poorer and less populated location.

The varied effects across districts are captured by the change in market access measures for the Dakar-Lagos corridor. Improved market access through corridor improvement could be complemented with steps to remove delays in transit time or delays at the trade border. Corridor improvements without any complementary policies to address transit time and trade border delays would induce most of the change in the benefits of market access only in those locations along the corridor, while the benefits would disappear relatively quickly with distance. Adding trade facilitation policies to reduce transit and all border delays would spread the benefits to almost all locations. The most isolated places, the furthest away from the coast, would experience the smallest increase in market access.

Spatial general equilibrium models have also been used to assess the impacts of future transport infrastructure on structural change in the Horn of Africa, including four corridors in Djibouti, Ethiopia, Kenya, and Somalia: Kismayo-Lamu-Mogadishu; Assab-Djibouti; Berbera-Djibouti; and Mogadishu-Berbera-Bossasso (Herrera-Dappe and Lebrand 2021). The analysis suggests that the total share of employment in nonagricultural sectors at the country level would increase, but not in every subnational region. Lower transport and trade costs would increase market access and would lead to higher specialization from relative comparative advantage in one sector—but would also generate more competition from other regions in the country for the traded goods sectors. For some regions, better regional connectivity would translate into higher specialization in agricultural production.

Among countries in the Horn of Africa, the regions that tend to experience a decrease in nonagricultural sectoral shares from better connectivity are either isolated regions or border regions, mostly in northwestern Ethiopia and northeastern Kenya, that would benefit from lower transport costs. These analyses suggest that regions