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

June 6 2016

We investigate the effects of the construction of the national highway system in China on local economic outcomes. The analysis employs three main approaches. The first is based on a structural model of Ricardian trade that provides an explicit description of the general equilibrium effects of changes in the highway network. The second involves reduced form estimates of the casual effects highways, which accommodates the non-random assignment of highways across locations. The third approach is a hybrid of the first two. Technique matters. The structural model suggests that access to domestic markets, but not to export markets, increases economic output. The reduced form estimates suggest the opposite conclusion and also point to the importance of highways in the rise of regional primate cities. These reduced form findings are consistent with export driven growth policies and central or provincial government policies favoring regional primate cities. In addition to informing policy, our results raise concerns about the use of quantitative results from Ricardian trade models in isolation for understanding how and the extent to which infrastructure drives regional growth. 

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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.