The influence of highway on local economy: Evidence from China's Yangtze River Delta region

Highway network has been constructed on a massive scale in recent decades, potentially reshaping the spatial economic pattern in China. This paper aims to investigate the influence of highway on local economic growth by exploiting county-level data of China's Yangtze River Delta region from 1993 to 2013. We employ a difference-in-differences (DID) model and control several determinants of highway location to lessen the endogeneity bias brought by non-random selection. Considering the possible impact of endogeneity, spatial dependence and unobservable variables on estimation, we conduct propensity score matching, instrumental variable estimates, spatial DID method and placebo tests to ensure the robustness of results. Our analysis shows that: (1) The opening of highway significantly stimulates the county economy, with an increasing trend on the year by year basis. (2) Highway has heterogeneous effects in terms of different locations, provinces and industries. Counties closer to the central city, in Jiangsu province or with bigger service sector, benefit more from highway operation. (3) Highway can generate an increase in market potential and then in local economic growth. In this process, highway mainly promotes the economy through the way of attracting investment and facilitating consumption. The mechanism through labor is not significant.