Expressways, GDP, and the Environment: The Case of China

Abstract

In a matched difference-in-differences setting, we show that China’s expressway system helps poor rural counties grow faster in GDP while slowing the rich rural counties down, compared with their unconnected peers. This heterogeneity is not driven by factors about initial market access, factor endowments, or sectoral patterns, but is consistent with the Chinese government’s development strategy that relatively more developed regions prioritize environmental quality over economic growth, while poor regions pursue the opposite. We further investigate the environmental outcomes and find that expressway connection indeed makes poor counties adopt dirtier technologies, host more polluting firms, and emit more pollutions, contrary to what happens to the rich connected counties. These results imply that recognizing the GDP–environment trade-off can help understand the full implications of infrastructure investment and other development initiatives.

Keywords: transport infrastructure; pollution haven hypothesis; home market effect; political economy of the environment

JEL Classification: O18, O13, Q56, H54, R11