How Infrastructure Construction Reduces Market Segregation in China: Achievements and Problems

Theoretically, infrastructure construction helps remove domestic market segregation and thus create a modern market system. Based on the theory of new economy geography, this paper investigates the relationship between infrastructure construction and market segregation using the Spatial Panel Dubin Model(SPDM) based on China’s interprovincial panel data of 1993-2012. As shown by empirical result, the beggar-thyneighbor problem existed persistently within China, infrastructure construction helped remove market segregation and should be enhanced, infrastructure construction had heterogeneous spatial spillover effects across periods, and market segregation behaviors were heterogeneous across regions or localities. China should enhance infrastructure to narrow regional gaps and step up cooperation among investors across regions to reduce the adverse impact of geographical boundary, and create modern service-based local governments, allowing the market to play a decisive role in resource allocation.