Transportation Infrastructure, Competition and Productivity: Theory and Evidence from China
17 Pages Posted: 22 Apr 2018
Date Written: April 19, 2018
This paper investigates the impacts of transportation infrastructure expansions on firm productivity and productivity gaps between the private and state sectors in China. Heterogeneous firms compete strategically a la Cournot in a multi-region model of internal trade. We show that lower transportation costs generate stronger selection and higher productivity by triggering fiercer competition. State-owned enterprises, however, are less affected, resulting in a higher productivity gap between private and state firms. Our theoretical results are consistent with empirical findings from China.
Keywords: Transportation Infrastructure, Cournot Competition, Productivity, Markup, Market Access
JEL Classification: F1
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