In this context, a new NBER working paper by Dave Donaldson assesses the economic benefits of large transportation infrastructure by examining the development of the vast railway network in colonial India. He uses archival data from the times and compares the impact on areas where these lines were built and those where, though sanctioned, it was never built, and found that
"railroads reduced the cost of trading, reduced inter-regional price gaps, and increased trade volumes..., when the railroad network was extended to the average district, real agricultural income in that district rose by approximately 16%."
The economic impact apart, there are several social and political consequences of enabling physical transport connectivity. It immediately opens up the area, thereby potentially weakening political insurgency (through both economic development and reducing the cover offered by inaccessibility). The resultant opening up has the potential to create a powerful force of modernization that can erode regressive social and political traits, and empower the residents of the area. It also increases the efficiency of labor markets - the Bihar worker who was getting Rs 35 per day working in his village in Motihari now finds it convenient to migrate to work for Rs 200 a day in Mumbai - and promotes economic growth.
As an afterthought, and with reference to SR's SMS, the impact of light-rail networks could be even more dramatic. For a peek into the benefits, just look north of the border to China, which has already developed 7431 km of light-rail network. An ambitious 1,318-km high-speed rail line linking the country's two most important cities — Beijing and Shanghai - at a cost of $33-billion line will open in 2012, and reduce travel time in half, to just five hours.