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Public Infrastructure Investment and Domestic Trade Integration in China

Author

Listed:
  • YINGMING ZHU

    (Nanjing University of Science and Technology)

  • DONGWEI GUO

    (Nanjing University of Science and Technology)

  • YAO ZHANG

    (Nanjing University of Science and Technology)

  • ZIYAN ZHENG

    (Nanjing University of Science and Technology)

  • XIN ZHANG

    (NanJing XiaoZhuang University)

Abstract

This research constructs a two-region dynamic general equilibrium (DGE) model. Utilizing numerical simulations, it thoroughly reveals the mechanisms through which public infrastructure investment affects the integration of domestic trade and further examines the determining factors of the effects of public infrastructure investment on domestic trade integration. The research indicates that public infrastructure investment has a significant inverted U-shaped impact on domestic trade integration, meaning there exists an optimal scale of public infrastructure investment to maximize domestic trade integration. This is due to the linkage mechanism of public infrastructure investment affecting transaction efficiency in production trade, specialization of production, trade home bias, and thereby influencing inter-regional economic and trade relations as well as domestic market integration. The substitutability of products, congestion of public infrastructure services, and labor friction (overhead labor) significantly affect the effects of public infrastructure investment on domestic trade integration, with notable regional disparities. The findings have important implications for public infrastructure investment policies aimed at promoting the development of domestic trade integration.

Suggested Citation

  • Yingming Zhu & Dongwei Guo & Yao Zhang & Ziyan Zheng & Xin Zhang, 2025. "Public Infrastructure Investment and Domestic Trade Integration in China," Hacienda Pública Española / Review of Public Economics, IEF, vol. 253(2), pages 27-57, June.
    • Handle: RePEc:hpe:journl:y:2025:v:253:i:2:p:27-57
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    References listed on IDEAS

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    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F15 - International Economics - - Trade - - - Economic Integration

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