Does Investment in National Highways Help or Hurt Hinterland City Growth?

November 21 2017

We investigate the effects of the recently constructed Chinese national highway system on local economic outcomes. On average, roads that improve access to local markets have small or negative effects on prefecture economic activity and population. However, these averages mask a distinct pattern of winners and losers. With better regional highways, economic output and population increase in regional primates at the expense of hinterland prefectures. Highways also affect patterns of specialization. With better regional highways, regional primates specialize more in manufacturing and services, while peripheral areas lose manufacturing but gain in agriculture. Better access to international ports promotes greater population, GDP, and private sector wages on average, effects that are probably larger in hinterland than primate prefectures. An important policy implication is that investing in transport infrastructure to promote growth of hinterland prefectures has the opposite effect, causing them to specialize more in agriculture and lose economic activity.

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Vernon Henderson joined the LSE in September 2013 as School Professor of Economic Geography, having previously been Eastman Professor of Political Economy at Brown University, USA.

Matthew A. Turner

Professor Turner holds a bachelor's degree from the University of California and a Ph.D. in economics from Brown University. His research focuses on the economics of land use and transportation.

Qinghua Zhang is an Associate Professor, Department of Applied Economics in Peking University. Her main research interests include urban and regional economics, public finance, and applied theory.