Abstract
This paper examines the impact of highway expansion on aggregate productivity growth and sectoral reallocation between cities in China. To do so, I construct a unique dataset of bilateral transportation costs between Chinese cities, digitized highway network maps, and firm-level census. I first derive and estimate a market access measure for cities in China from 1995 to 2005. I then examine the channels through which the highway infrastructure affected economic outcomes. The results suggest that highways promoted aggregate productivity growth by facilitating the entry of new firms and reallocation among existing firms. I estimate the aggregate economic impact of China's national highway system and find that eliminating all highways in China would decrease aggregate productivity by 3.2%. There is also evidence that the national highway system led to a sectoral reallocation between cities in China.
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