On the Reverse Causality between Output and Infrastructure: the Case of China

China has been considered as such a successful example of enhancing economic growth by massive infrastructure investments in the past decades. A recent paper by Shi and Huang (2014) indicates a very big positive return of public infrastructure in China during 1995-2011 using China’s provincial-level data. However, the literature has provided con‡icting empirical results on the productivity e¤ect of public infrastructure using aggregate data, mainly due to reverse causality. Thus, the estimated productivity e¤ect could be either upward or downward biased. In this paper, we discuss the institutional background on why upward bias is more likely to dominate in the case of China. Using provincial-level data over 1996-2015 and within the framework of an aggregate production function estimation, no strong evidence is found on the productivity e¤ect of public infrastructure. This …nding highlights the necessity of using alternative identi…cation strategies or data types. JEL Classi…cation: C23, E22, H54, O40, O50