Bridging the Gap: Infrastructure, Services, and Labor Market Integration

Abstract

How does transport infrastructure shape services provision, labor markets, and regional inequality? This paper studies the 2000 opening of the Øresund Bridge between Malmö, Sweden, and Copenhagen, Denmark, which sharply reduced travel time. The setting resembles a core–periphery structure in which infrastructure connects a smaller regional economy to a larger, higher-wage urban hub, while the international border makes otherwise unobserved services transactions measurable in trade statistics. The bridge enabled cross-border commuting for on-site services and lowered business-travel costs for partially remote services like consulting. The paper develops a spatial model with commuting, migration, and services trade to separate these channels and quantify welfare effects. Services trade is distance-sensitive, with elasticities from 0.38 to 0.76, but less so than commuting. Lower commuting costs thus generate uneven gains, while lower services trade costs produce more diffuse benefits. Ignoring services understates welfare gains of infrastructure by around 50%, especially for farther regions benefiting through services trade via business travel but not commuting.