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Road investments and inventory reduction: Firm level evidence from China

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  • Li, Han
  • Li, Zhigang

Abstract

This study presents new evidence on the causal impact of transport infrastructure on the economy. In China, inventory has declined over recent decades, while the country’s road infrastructure has expanded rapidly. Building on the existing literature, we introduce new approaches, including a quasi-experiment based on differential demand for distant suppliers, to identify the causal relationship between road investments and inventory decline. Examining a large panel data set of Chinese manufacturers from 1998 to 2007, we find one dollar of road spending saves around two cents of inventory costs. This effect is non-trivial but less than that in the United States in the 1970s. Moreover, our estimates also suggest spillover effect from road investments to firms in neighboring provinces.

Suggested Citation

  • Li, Han & Li, Zhigang, 2013. "Road investments and inventory reduction: Firm level evidence from China," Journal of Urban Economics, Elsevier, vol. 76(C), pages 43-52.
  • Handle: RePEc:eee:juecon:v:76:y:2013:i:c:p:43-52
    DOI: 10.1016/j.jue.2013.02.002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Stephen Gibbons & Teemu Lyytikäinen & Henry Overman & Rosa Sanchis-Guarner, 2012. "New Road Infrastructure: the Effects on Firms," SERC Discussion Papers 0117, Spatial Economics Research Centre, LSE.
    2. Wang, Xu & Zhang, Xiaobo & Xie, Zhuan & Huang, Yiping, 2016. "Roads to innovation: Firm-level evidence from China:," IFPRI discussion papers 1542, International Food Policy Research Institute (IFPRI).
    3. repec:eee:regeco:v:65:y:2017:i:c:p:116-126 is not listed on IDEAS
    4. Stephen Gibbons & Wenjie Wu, 2017. "Airports, Market Access and Local Economic Performance: Evidence from China," SERC Discussion Papers 0211, Spatial Economics Research Centre, LSE.
    5. Holl, Adelheid, 2016. "Highways and productivity in manufacturing firms," Journal of Urban Economics, Elsevier, vol. 93(C), pages 131-151.
    6. Nadine Gatzert & Thomas Kosub, 2014. "Insurers’ Investment in Infrastructure: Overview and Treatment under Solvency II," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 39(2), pages 351-372, April.
    7. Iimi,Atsushi & Humphrey,Richard Martin & Melibaeva,Sevara, 2015. "Firm inventory behavior in east Africa," Policy Research Working Paper Series 7280, The World Bank.
    8. Yu Qin, 2016. "China's Transport Infrastructure Investment: Past, Present, and Future," Asian Economic Policy Review, Japan Center for Economic Research, vol. 11(2), pages 199-217, July.
    9. Zhigang Li, 2012. "Comment on "Provincial and Local Governments in China: Fiscal Institutions and Government Behavior"," NBER Chapters,in: Capitalizing China, pages 369-372 National Bureau of Economic Research, Inc.
    10. Gibbons, Stephen & Wu, Wenjie, 2017. "Airports, market access and local economic performance: Evidence from China," LSE Research Online Documents on Economics 83630, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Infrastructure investment; Inventory; China;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R4 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics

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