SMU SOE Seminar (Mar 13, 2017): Highways, Market Access, and Urban Growth in China

We investigate the effects of the construction of the national highway system in China on local economic outcomes. On average, roads that improve access to local markets have negative effects on prefecture population and private sector firm wages. However, these effects mask critical heterogeneity and a distinct pattern of winners and losers in the data. Regional primate cities gain at the expense of their hinterland prefectures overall and in terms of goods and services likely to be shipped by road in these regional markets. While peripheral areas lose manufacturing activity with better connections to domestic markets, they gain in agriculture. Better access to international ports promotes greater population, GDP, and private sector wages on average, with these effects seen more outside of regional primate cities. The industrial sector drives the majority of these effects. A key 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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