Impact of Transportation Investment on Economic Growth in China

As China has experienced rapid economic growth and increased urbanization in recent decades, a crucial policy challenge for its government has been the development of urban transportation. Although conventional wisdom suggests that more infrastructure investment will stimulate economic development, empirical evidence is mixed. With the use of a panel data model (1999-2011 across Chinese provinces), transportation investment was found to have had significant impacts on economic growth, after which variables were controlled for that measured provincial openness, human capital, and government size. Transportation investment in one province not only promoted economic growth in that province but also had external effects on neighboring provinces. External effects were strong for highways, whereas internal effects were strong for urban roads. [In this analysis, highways in China meant controlled access highways (freeways).] The results of the study can have policy implications for mechanisms used to fund transportation in China.