Transport Infrastructure and Productivity: The China Experience

China has undertaken massive investments in its surface transportation system since the early 1990s, continuing to the present day. We study the impact of these public investments on plant productivity and resource allocation efficiency. We first collect and geocode highly detailed data on China’s highway, railway and waterway transport system and its expansion in recent decades. We integrate these transport system data with longitudinal data on the location, inputs and outputs of nearly a half million manufacturing plants. We find that resource allocation is inefficient in China as unproductive units occupy more resources. Not surprisingly perhaps, plants in closer proximity to high-quality transport are more productive than otherwise comparable plants. Using a quasi-experimental approach, we find that productivity rises and its cross-plant dispersion falls with improvements in local transportation infrastructure. While plant entry and exit play an important role in these productivity responses, results suggest that exit and entry in China are inefficient and distorted. Among continuers, plants with relatively high total factor productivity (TFP) before treatment expand relative input usage after treatment. These and other results indicate that better access to transportation intensifies market competition, selects against less productive plants, facilitates the entry of new plants, and promotes the reallocation of factor inputs to relatively productive plants.