Spread or backwash: The impact on population dynamics and business performance of a new road in a rural county of Galicia (Spain)

Abstract

The natural experiment provided by the opening of a section that completed the A8 motorway in Mariña de Lugo, a rural area in Galicia (Spain), offers an opportunity to identify whether spread or backwash effects in economic activity are observed. The new section directly affects only a small strip of the territory—where the transition from the inland rural areas to the more dynamic coastal area takes place. This allows us to test a separate dual inner-coastal socio-economic performance after the opening of the new road—an analysis that has rarely been performed for rural areas in developed countries. We study the impact over population growth, employment and business financial results, using the differences-in-differences approach. The results we obtain are consistent with the spread hypothesis for the nearest municipality to the new road section, while the spread effects did not disseminate to the neighbouring municipalities. These global results hide a different performance at the sector level, positive for transport and manufacturing companies, and negative for retail firms and hospitality.