Highway infrastructure and firm investment — microeconomic evidence from China

Zhou, Yanyu (2024) Highway infrastructure and firm investment — microeconomic evidence from China. PhD thesis, University of Glasgow.

Abstract

China experienced rapid highway expansion following the two major highway infrastructure projects by the Chinese government, that is, the National Trunk Highway System project in 1992 and the National Expressway Network project in 2004. This thesis explores how firms’ investments are affected by the rapid expansion of China’s highway network, using a geo-coded firm-level panel dataset for Chinese manufacturing firms in the period from 1998 to 2007. To identify the causal effect, two types of endogeneity concerns arising from the non-random distribution of highways and the endogenous location of firms are addressed using a range of time-varying instruments and samples. Empirically, three main findings are discovered in this thesis. First, better access to highways encourages firms to reduce their input and total inventories. Firms’ input inventories are more affected by highways through the direct channel of reduction in transportation cost and transit time, whereas firms’ output inventories are more affected by the demand channel. Second, better highway proximity promotes firms’ fixed investment, supporting the crowding-in effect of public investment. Highway proximity is found to stimulate corporate investment through at least three mechanisms, that is, by reducing firms’ financial constraints, releasing additional internal funds via inventory reduction, and mitigating the negative impact of uncertainties. Third, better highway proximity stimulates the allocative efficiency of capital and reduces the dispersion of marginal revenue product of capital (MRPK). Specifically, there are four mechanisms through which highway infrastructure reduces MRPK dispersion, that is, by reducing both productivity volatility and mark up dispersion and by inducing heterogeneous effects on MRPK dispersion through financial constraints and policy distortion.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HB Economic Theory
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Economics
• Supervisor's Name: Ding, Professor Sai, Yoshimoto, Dr. Hisayuki and Maclennan, Professor Duncan
• Date of Award: 2024
• Depositing User: Theses Team
• Unique ID: glathesis:2024-84144
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 25 Mar 2024 16:24
• Last Modified: 25 Mar 2024 16:26
• Thesis DOI: 10.5525/gla.thesis.84144
• URI: https://theses.gla.ac.uk/id/eprint/84144