Expressways, market access, and industrial development in China: Using walled-city panel instrumental variables of minimum spanning tree

Emerging countries like China have heavily invested in motorways to improve market access. Such transport network expansion can affect regional industrial development, but causal inference is challenging. Existing studies typically focus on longer-term effects or exclude economically important locations, lacking an identification strategy that can address rapid transport development and cover the country's entire economic geography. To fill this gap, we introduce quasi-random Walled-City MST Panel IVs to instrument market access and examine how China's rapidly expanding expressway network affects manufacturing development. The IVs are generated by simulating dynamic expansion paths of hypothetical networks that ultimately connect all target locations predicted by 1820 city-wall characteristics. Research verifies IV orthogonality and inclusion and exclusion restrictions in both static and dynamic aspects. It conducts horse races between cross-sectional and panel IVs, and between IVs with or without historical city-wall data. The panel IV strategy is useful when both transportation development and economic growth are rapid. Excluding locations is unnecessary. County-level analysis shows that during 2000–2009, when market access improved by 1 %, manufacturing GDP and firm count increased by 0.28 % and 0.07 %. Manufacturers' average output, capital, and labor increased by 0.08 %, 0.06 %, and 0.03 %. There were impacts on regional decentralization, industrial upgrade, and geographic concentration of manufacturers. Trade elasticity is estimated. A model of market access derives estimable equations and rationalizes the economics, with the assumptions of inelastic residential and industrial land supply and mobile capital and labor.