High-speed Rail and the Spatial Distribution of Economic Activity: Evidence from Japan's Shinkansen

We investigate the effects of high-speed rail (HSR) on the location of economic activity. We set up a spatial quantitative general equilibrium model that incorporates spatial linkages between firms (including manufacturing and services), agglomeration economies, as well as commuting and migration. The model is estimated for Japan in order to investigate the impacts of the Shinkansen, i.e., the first HSR ever built. We show that traveling by train strengthens firms' linkages, but is less important for commuting interactions. The Shinkansen increases welfare by about 5%. We show that extensions of the Shinkansen network may have large effects (up to a 30% increase in employment) on connected municipalities, although the effects are smaller for places with higher fixed costs. Our counterfactuals show that, without the Shinkansen, Tokyo and Osaka would be 6.3% and 4.4% larger, respectively.