SMU SOE Seminar (May 18, 2018): Expressways, GDP, and Pollution: Evidence from China and an Explanatory Model

Using Chinese county-level data from 2000 to 2012, we estimate the impact of expressway connection on local GDP in a difference-in-differences setting. We find that poor counties grow faster while rich counties grow slower after expressway connection, compared with their unconnected counterparts. This heterogeneity is driven neither by supply-side factors nor by the initial access to the nearby market, but by demand-side factors. To reconcile the empirical findings, we propose a trade model with hierarchical preference, which illustrates different trade-offs between environmental quality and GDP faced by decision makers with different initial levels of GDP. Consistent with additional predictions from the model, we further show empirically that rich counties pollute less and poor counties pollute more after expressway connection.

Keywords: Transport infrastructure; Environmental Kuznets curve; Pollution haven hypothesis; Home market effect; Hierarchy of needs

JEL Classification: Q56; Q53; O13; H54; O18; R11