Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China
This paper examines the effects of economic integration resulting from highway construction on aggregate productivity and the spatial distribution of industries. To do so, it constructs a unique dataset of bilateral transportation costs between Chinese cities, digitized highway network maps, and firm-level census. It first derive and estimate a market access measure for cities in China from 1995 to 2005 using estimated bilateral transportation costs. Then examines the channels through which highway infrastructure facilitated aggregate productivity growth and sectoral reallocation across space. It finds that highway infrastructure in China promoted aggregate TFP growth through the entry of new firms and the reallocation among existing firms. It also find that highways led to a spatial reallocation of industries in China. Industries with large weight-to-value ratio, high capital intensity, and low product differentiation grew disproportionately faster than other industries in cities that experienced large increases in market access.
