Transportation Infrastructure, Competition and Productivity: Theory and Evidence from China

Abstract

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