High-speed Rail and the Demand for Skill: Evidence from Chinese Exports

Abstract

We study how the extensive expansion of high-speed rail (HSR) affects the demand for skilled labor and trade patterns in China. Our empirical findings show that HSR connections significantly boost exports, elevate their skill content, and lead firms to procure inputs from more distant suppliers while increasing their reliance on domestic sources. Cities connected by HSR see an increase in the share of skilled labor and a rise in skill premiums. These trends suggest a growing relative demand for skills driven by the spatial outsourcing of tasks previously performed by unskilled workers. We develop and quantify a spatial equilibrium model with this mechanism to explore the aggregate and distributional effects of HSR. Quantitative estimates demonstrate that the cost savings from improved matching between buyers and suppliers-driven by HSR connections-are equivalent to an 11.37% reduction in iceberg trade costs for domestic intermediate inputs. This reduction leads to welfare gains equivalent to 4.27% of China's 2011 GDP over the period from 2011 to 2017, accounting for 34% of total welfare changes alongside broader economic shifts. However, the benefits of HSR disproportionately favor coastal cities with higher concentrations of skilled labor, thereby exacerbating existing spatial disparities.

Keywords: Transport infrastructure, outsourcing, skill premium, china