High-speed railways and local economic performance: evidence from China’s prefecture-level cities

Purpose - The purpose of this paper is to identify the causal effect of high-speed railways (HSRs) and investigate the affecting channels; the second purpose is to examine how HSRs change the distribution of economic activity across cities and sectors. Design/methodology/approach - A difference-in-difference strategy is implemented to estimate the impact of recently built HSRs on local economic performance in China, exploiting the geography and time variations in HSR operations. Findings - Using panel data from China’s City Statistical Yearbook 2001–2019, the authors find that HSRs lead to a significant increase in cities’ gross domestic product (GDP) and GDP per capita, but the authors do not find any significant change in GDP growth. This conclusion still holds true after the authors address the endogeneity problems. A mechanism analysis shows that HSRs improve local economic performance mainly by increasing fixed asset investment. The authors also find that the HSR investment is a policy that favors metropolitan areas due to the larger increase in the GDP for larger cities and with HSRs, the industrial and service sectors will further agglomerate in larger cities. Originality/value - The authors contribute to the literature in several ways. First, this paper improves the estimation strategy in identifying the HSR impact on the local economic performance. Second, this paper investigates the affecting channels of HSRs. This paper proves that HSRs in China promote the cities’ economic performance mainly by increasing the fixed asset investment. Third, this study provides evidence for the new economic geography models pioneered by Krugman (1991).