The Role of Infrastructure Capital in China’s Regional Economic Growth

Copyright 2012 by Yingying Shi. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. Abstract This paper investigates the role of infrastructure capital in China's regional economic development during 1990 to 2009 in a neoclassical economic growth model. Four types of infrastructure capital are discussed; electricity, road, rail, and land-line telephone. The results support a positive role of infrastructure in improving economic wellbeing in China. It shows that infrastructure has contributed to the convergence among China's provinces. However, declining growth momentum from rapid increase of road infrastructure, in particular for the Western region, suggests that road development in the region has been growing too fast. The results counter the conventional wisdom of " road leads to prosperity " widely accepted among national and local governments in China. Thus, the seemingly productive infrastructure capital, when invested beyond a proper level or speed, will become unproductive. The results resonate with the theoretical literature on the inverse U shaped growth impact of infrastructure capital and the dominant " crowding out " of private capital if there is too much infrastructure. They also address the puzzle in the current literature debates as to the direction and magnitude of the growth impact of infrastructure capital.