Rail, Rivers, Road or Air: Which Infrastructure Promotes Growth in China?

Abstract

We examine the relationship between growth in transportation and economic output across Chinese provinces from 2005-2014. Panel GMM methods evaluate the impact of changes in air, conventional rail, HSR, roads, and waterways turnover volume on provincial output growth. GMM estimates demonstrate that rail and roads significantly affect economic growth; rail’s impact is particularly significant and robust across econometric specifications, different regions in China and the coefficients are economically large for agriculture and manufacturing output. Out-of-sample GMM forecasts show that road and rail substantially reduce forecast error of provincial GDP growth. In contrast, air, HSR, and water usage do not contribute to economic growth. Impulse response and variance decompositions indicate that rail and roads considerably affect GDP growth across China, and there is bi-causality between transportation and economic growth. Cost-benefit analysis highlights that the benefit of roads, and particularly rail, outweigh the costs of infrastructure spending.