Income allocation and distribution along with high-speed rail development in China

Abstract

Previous studies have extensively examined the role of high-speed railways in economic growth from the view of economic geography but have largely overlooked their contribution as technological progress to wages and private savings. This study aims to fill this gap by analysing the association between high-speed rail, wages and private deposits in 284 Chinese prefectural-level cities from 2003 to 2018. Utilizing a difference-in-difference method and conducting robustness tests, we examine three potential mechanism channels in this association. Our findings reveal that the introduction of high-speed rail new stations has significantly boosted wage levels through employment effects and financial development effects. However, the opening of the new stations has led to a decrease in private savings. This can be attributed to the marginal absorption of increased wages by higher consumption levels facilitated by high-speed rail development. Additionally, high-speed rail development stimulates private capital investments growth in financial markets. In essence, the technological progress represented by high-speed rail alters residents' traditional investment behavior. Our finding suggests strong heterogeneity across regions and significant siphon effects across cities. This paper offers insights into the balanced development of wages and private deposits in China, highlighting the implications of high-speed rail for economic dynamics in the country.