Make Cloud Out of Air: The Allocation of Infrastructure Management Responsibilities and Regional Economic Development

Abstract

Transportation infrastructure promotes regional economic development. Previous research mainly focuses on the construction of infrastructure, and the maintenance and operation of infrastructure to a large extent is ignored. However, infrastructure is a kind of capital that delivers the flow of service for the whole economy. To fully exploit transportation infrastructure to raise economic development, it is important to utilize the local information and improve the operational efficiency of infrastructure.In 2003, due to the substantial fiscal burden, Civil Aviation Administration of China decided to transfer the ownership and management responsibilities of almost all existing airports, except the Beijing Capital Airport and the airports in Tibet, to the provincial governments. This reform effectively reduced the distance to monitor the agent, and was expected to improve the operational efficiency of airports. This paper studies the causal impact of this reform on regional economic development. We employ a triple difference estimation to evaluate the impact of this reform on city-level total factor productivities（TFP）. In particular, we consider the variation in three dimensions: time, whether a city has an airport, and the reliance on air-travel, defined by the ratio of firms in air-travel-related industries to total number of firms in a city. It is shown that after the reform, the cities with airports significantly increased the TFP by 9.4%. Moreover, the cities with airports and higher reliance on air-travel-related industries enjoyed an additional 3.1% increase in TFP. A variety of robustness checks and placebo tests confirm the causal impact. Heterogeneity analysis shows that the benefits of airport localization reform mainly leave to the Eastern and Central Area. Further analysis suggests that the localization reform raises the complementary transportation infrastructure investment, and boosts the export.This research indicates that the management of transportation infrastructure should consider the incentives and information of different agents, and empower the local government to match the rights with responsibilities and interests. This would substantially improve the efficiency of infrastructure, and fully integrate the infrastructure into the regional economy.