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