The Role of Public Infrastructure in China's Regional Inequality and Growth: A Simultaneous Equations Approach


  • Zheng acknowledges financial support from the China Scholarship Council (CSC) via a scholarship under the State Scholarship Fund. Kuroda appreciates the financial support by JSPS: Grant-in-Aid for Scientific Research (B) 19330048. We thank the comments of participants at the 25th Applied Regional Science Conference (Toyama), and the 13th Annual Conference of the Association for Public Economic Theory (Taipei). The authors are also grateful to the anonymous referees and the editors of this journal for their helpful comments on this paper. All remaining errors are the authors' alone.


Using a simultaneous equations approach, this paper empirically investigates the impact of two types of public infrastructure, transportation infrastructure and knowledge infrastructure, on industrial geography, regional income disparities, and growth across 286 cities in China. It is found that an improvement in transportation infrastructure that reduces trade costs on goods increases growth and decreases income gap at the expense of increasing industrial agglomeration between cities. Therefore, this paper confirms the existence of a trade-off between spatial equity (more even spatial distribution of economic activities) and spatial efficiency (higher growth rate). However, for knowledge infrastructure that reduces trade costs on ideas, it is found that it increases growth but also decreases income gap and industrial agglomeration simultaneously. Moreover, the impact of knowledge infrastructure is found to be larger in the case of high labor mobility.