The Fastest Route to Specialization? Evidence from the Expansion of the Italian Highways System

Abstract
This paper studies how large-scale transport infrastructure alters the sectoral composition and spatial integration of local economies. We exploit the staggered expansion of Italy’s highway network between1955 and 1975 as a quasi-natural experiment, combined with industrial census data spanning 1951–2001.Using a staggered difference-in-differences design, we find that municipalities connected to the highway system experienced a persistent decline in industrial specialization. This shift reflects a more even distribution of employment across pre-existing sectors, rather than the entry of new industries. To analyze both direct and network-mediated effects, we reconstruct the full Italian road network (1951–1981) from historical maps using a custom algorithm — producing a novel dataset of unprecedented temporal and spatial coverage. Leveraging this network, we identify evolving local labor market communities and show that highway access anchored municipalities more firmly within them, reducing the likelihood of switching — particularly toward more specialized communities. When switches did occur, municipalities tended to adapt their industrial structure to match their new community: joining a specialized cluster increased specialization, while joining a diversified one reduced it. Our findings reveal how infrastructure-induced market integration reshapes both the internal structure and external linkages of local economies.