Abstract
This paper provides evidence that domestic trade costs are a source of national comparative advantage. I build a model of international trade and internal geography that considers both international shipping routes and input-output linkages. I use the model to simulate how a large infrastructure project, Ruta del Sol, affects the specialization of Colombia, a country whose exports are highly concentrated in the mining sector. This road improves access to global markets for both mining and manufacturing regions. To quantify the model and estimate its parameters, I use customs administrative records, a transportation survey, and geospatial data generated from both physical and digital road maps. My results indicate that the road project shifts the comparative advantage of Colombia away from mining, and towards manufacturing. Lastly, I show that the change in comparative advantage is larger when industry linkages are considered because access to tradable intermediate inputs benefits the manufacturing sector more than the mining sector. The results demonstrate that national comparative advantage is shaped materially by domestic trade costs, beyond the elements typically analyzed in the literature such as factor endowments, technology, and institutions.