“Transport infrastructure, urban growth and market access in China” (Matthew Turner)

Professor Matthew Turner (Brown University) presented a paper on the role of infrastructure investments in linking local markets and its growth effects. This is an important growth topic because, as the presenter noted, a very large amount of development lending and government budgets are spent on infrastructure every year in the developing world. The goal of this work is to address three points. The first is to provide more evidence on the relevance of the scale of cities and urban areas to productivity and growth. The second, which is a technical but very important point, is to provide a method for defining how infrastructure improves growth in areas that it links up. This focuses on the important distinction between reorganisation, where it appears that an area has received growth from a new road or infrastructure link, but it is really a relocation of economic activity, and actual growth, which is genuine new economic activity. The third is to provide a study in the effects on infrastructure in urban areas, which is helpful as a lot of thinking about infrastructure focuses on its potential as a rural development tool. The paper focuses specifically on the unprecedented massive expansion of the highway networks in China in between 1990 and 2010 in order to explore these questions.

The main mechanism by which roads appear to have increased growth in China during this period has little to do with the roads themselves, but is the power that these roads have to link urban centres with each other. These infrastructure investments increase the potential market for each urban centre, as products can now be shipped farther in the same amount of time. This allows for higher integration in markets and trade between these centres, and ultimately leads to higher efficiencies through this coordination. The initial results are suggestive that this effect of extending infrastructure networks can have powerful effects on economic growth. This also has strong implications for the potential of infrastructure investments, as strong economic benefits of these infrastructure networks only exist insofar as they link up previously unconnected productive economic centres. Simply building roads that provide no such links will achieve little and cost much, whereas well-targeted roads that create such linkages have the potential to generate genuine growth in economic activity.

By Aaron Weisbrod, Country Economist, IGC Myanmar