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Trade Integration, Market Size and Industrialization: Evidence from China's National Trunk Highway System

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  • Benjamin Faber

Abstract

Large scale transport infrastructure investments connect both large metropolitan centers of production as well as small peripheral regions. Are the resulting trade cost reductions a force for the diffusion of industrial and total economic activity to peripheral regions, or do they reinforce the concentration of production in space? This paper exploits China's National Trunk Highway System as a large scale natural experiment to contribute to our understanding of this question. The network was designed to connect provincial capitals and cities with an urban population above 500,000. As a side effect, a large number of small peripheral counties were connected to large metropolitan city regions. To address non-random route placements on the way between targeted city nodes, I propose an instrumental variable strategy based on the construction of least cost path spanning tree networks. The estimation results suggest that network connections led to a reduction in GDP growth among no n-targeted peripheral counties due to reduced industrial output growth. Additional estimation results present evidence that appears consistent with the existence of core-periphery effects of trade integration as found in increasing returns trade theory and economic geography

Suggested Citation

  • Benjamin Faber, 2013. "Trade Integration, Market Size and Industrialization: Evidence from China's National Trunk Highway System," CEP Discussion Papers dp1244, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1244
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    File URL: http://cep.lse.ac.uk/pubs/download/dp1244.pdf
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    References listed on IDEAS

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    1. Jong, Jyh-Cherng & Schonfeld, Paul, 2003. "An evolutionary model for simultaneously optimizing three-dimensional highway alignments," Transportation Research Part B: Methodological, Elsevier, vol. 37(2), pages 107-128, February.
    2. Abadie, Alberto, 2003. "Semiparametric instrumental variable estimation of treatment response models," Journal of Econometrics, Elsevier, vol. 113(2), pages 231-263, April.
    3. Martin, Philippe & Rogers, Carol Ann, 1995. "Industrial location and public infrastructure," Journal of International Economics, Elsevier, vol. 39(3-4), pages 335-351, November.
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    Cited by:

    1. Redding, Stephen J. & Turner, Matthew A., 2015. "Transportation Costs and the Spatial Organization of Economic Activity," Handbook of Regional and Urban Economics, Elsevier.

    More about this item

    Keywords

    Trade integration; industrialization; road infrastructure;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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