Regional Development in China : Interregional Transportation Infrastructure and Regional Comparative Advantage

Significant economic disparities among China’s Eastern, Central, and Western regions pose unequivocal challenges to social equality and political stability in the country. A major impediment to economic development, especially in the poor, remote Western region, is the shortage of transportation infrastructure. The Chinese government has committed to substantial investment for improving the accessibility of this vast, landlocked region as a mechanism for promoting its development. The paper examines the impacts of the intended transportation infrastructure buildup on the Western region’s comparative advantage and its interregional trade. The World Trade Model is extended to represent this investment and applied to determine interregional trade in China based on region-specific technologies, factor endowments and prices, and consumption patterns as well as the capacities and costs of carrying goods among regions using the interregional transportation infrastructure in place in the base year of 1997 and that planned for 2010 and 2020. The model is implemented for 3 regions, 27 sectors, and 7 factors. The results indicate that the planned infrastructure buildup will be cost-effective, will increase benefits especially for the Western region, and that it can conserve energy overall at given levels of demand but substitute oil for coal. Based on these and other model results, some recommendations are offered about strategies for regional development in China. JEL Codes: L98, O53, C61, C67, O18 ____________________________ The authors can be reached at [email protected] and [email protected].