Travel costs and urban specialization patterns: Evidence from China’s high speed railway system

Abstract

How does intercity passenger transportation shape urban employment and specialization patterns? To shed light on this question I study China’s High Speed Railway (HSR), an unprecedentedly large-scale network that connected 81 cities from 2003 to 2014 with trains running at speeds over 200 km/h. Using a difference-in-differences approach, I find that an HSR connection increases city-wide passenger flows by 10% and employment by 7%. To deal with the issues of endogenous railway placement and simultaneous public investments accompanying HSR connection, I examine the impact of a city’s market access changes purely driven by the HSR connection of other cities. The estimates suggest that HSR-induced expansion in market access increases urban employment with an elasticity between 2 and 2.5. Further evidence on sectoral employment suggests that industries with a higher reliance on nonroutine cognitive skills benefit more from HSR-induced market access to other cities.