Infrastructure and the patterns of trade: An empirical look at China

Transport infrastructure plays an important role in economic growth, particularly for developing countries. Recently a burgeoning literature explores how transport infrastructure facilitates economic growth via the channel of trade. In this paper, we study this question in the context of China, but with several distinctions. First, we distinguish firms from different regions in China, and see how their trade behavior responds differently to changes in infrastructure. Second, we consider both export and domestic sales, with an eye toward the interplay between the two channels. Our estimation results reveal the presence of both regional heterogeneity and sales channel competition. For in-land provinces, an improvement in their transport infrastructure raises firms’ exports at the cost of domestic sales. Interestingly, the results are reversed for coastal provinces, mainly driven by non-coastal cities of coastal provinces (rather than coastal cities). We also find negative spatial spillover, in the sense that neighboring provinces tend to compete with rather than complement each other. Our analysis has important policy implications under the current geopolitical tension and policy initiatives (e.g. dual circulation in China).