Road Development, Economic Growth, and Poverty Reduction in China

In 1978, China initiated its economic and agricultural policy reforms. The ensuing rapid economic growth led to transportation shortages and congestion problems and increased the demand for roads. Since 1985 the government has given high priority to road development, particularly the construction of high-quality roads such as highways and freeways. While the construction of high-quality roads has taken place at a remarkably rapid pace, the construction of lower-quality and mostly rural roads has been slow. This study evaluates the contribution of roads to economic growth and poverty reduction in China. It disaggregates road infrastructure into different classes of roads to account for quality, and then estimates the impact of road investments on overall economic growth, agricultural growth, urban growth, urban poverty reduction, and rural poverty reduction. The study finds that benefit–cost ratios for lower-quality roads (mostly rural) are about four times larger than those for high-quality roads when the benefits are measured in terms of national GDP. Even in terms of urban GDP, these ratios are much greater for low-quality roads than for high-quality roads. In terms of poverty reduction, the study finds that, for every yuan invested, lower-quality roads raise far more rural and urban poor people above the poverty line than high-quality roads. Another significant finding of the study is the tradeoff between growth and poverty reduction in different parts of China, implying the need to formulate different regional priorities depending on whether economic growth or poverty reduction is more important for a particular part of the country. IFPRI has long emphasized the importance of infrastructure for promoting economic growth and reducing poverty. Without this essential public good, efficient markets, adequate health care, a diversified rural economy, and sustainable economic growth will remain elusive. Effective development strategies require good infrastructure as their backbone. The enormous benefit of rural roads that the study reveals for China holds true for other countries as well. Investment in rural roads should be a top priority to reduce poverty, maximize the positive effects of other pro-poor investments, and foster broadly distributed economic growth.