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Transport Infrastructure, City Productivity Growth and Sectoral Reallocation: Evidence from China

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Document pages: 66 pages

Abstract: This paper examines the effects of economic integration resulting from highway construction on aggregate productivity and the spatial distribution of industries. To do so, I construct a unique dataset of bilateral transportation costs between Chinese cities, digitized highway network maps, and firm-level census. I first derive and estimate a market access measure for cities in China from 1995 to 2005 using estimated bilateral transportation costs. Then I examine the channels through which highway infrastructure facilitated aggregate productivity growth and sectoral reallocation across space. I find that highway infrastructure in China promoted aggregate TFP growth through the entry of new firms and the reallocation among existing firms. I 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.

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