DP14818 Connective Financing - Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries

Author(s): Richard Bluhm, Axel Dreher, Andreas Fuchs, Brad Parks, Austin Strange, Michael J. Tierney
Publication Date: May 2020
Keyword(s): China, Development finance, foreign aid, infrastructure, spatial concentration, transport costs
JEL(s): F15, F35, O18, O19, P33, R11, R12
Programme Areas: Public Economics, International Trade and Regional Economics, Development Economics, Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14818

This paper studies the causal effect of transport infrastructure on the spatial concentration of economic activity. Leveraging a new global dataset of geo-located Chinese government-financed projects over the period from 2000 to 2014 together with measures of spatial inequality based on remotely-sensed data, we analyze the effects of transport projects on the spatial distribution of economic activity within and between regions in a large number of developing countries. We find that Chinese-financed transportation projects reduce spatial concentration within but not between regions. In line with land use theory, we document a range of results which are consistent with a relocation of activity from city centers to their immediate periphery. Transport projects decentralize activity particularly strongly in regions that are more urbanized, located closer to the coast, and less developed.