Transportation and economic growth in China: A heterogeneous panel cointegration and causality analysis

Abstract

This study analyzes the cointegration and causal relationship between transportation and economic growth in the eastern, central and western regions of China using provincial data from 2000 to 2015. Accounting for cross-section dependence and heterogeneity among provinces, a long-run equilibrium relationship is established between freight transportation and economic growth in all three regions. Specifically, the long-run output elasticity coefficient for freight transportation ranges between 0.35 and 0.89 among the three regions, with the highest economic impact in the central region. In addition, a bidirectional Granger causal relationship is identified between freight transportation and economic growth in the less developed central and western regions, while freight transportation leads economic growth in the more affluent eastern region but not the reverse. When considering modes of freight transportations, highways are found to be cointegrated with economic growth, with a long run impact ranging from 0.37 to 0.67 among the three regions. Also, the causality between highway freight and economic growth follows the relationship between overall freight transportation and economy in all three regions; whereas rail freight do not cause economic growth in any of the three regions. Our findings imply that highway freight has become the dominant mode of transportation in terms of supporting regional economic growth. In addition, spatial diversity in economic activity should be taken into consideration in planning regional transportation system in China.