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

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Document pages: 64 pages

Abstract: This paper examines the impact of highway expansion on aggregate productivity growth andsectoral reallocation between cities in China. To do so, I construct a unique dataset ofbilateral transportation costs between Chinese cities, digitized highway network maps, andfirm-level census. I first derive and estimate a market access measure that summarizes alldirect and indirect impact of trade costs on city productivity. I then construct an instrumentalvariable to examine the causal impact of highways on economic outcomes and the underlyingchannels. The results suggest that highways promoted aggregate productivity growth byfacilitating firm entry, exit and reallocation. I also find evidence that the national highwaysystem led to a sectoral reallocation between cities in China.

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