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

Abstract

We study how the expansion of high-speed rail (HSR) in China reshaped trade and skill demand. Empirically, HSR connections boost exports, increase their skill intensity, and lead firms to source inputs from more distant domestic suppliers. 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. To quantify these effects, we develop a spatial equilibrium model featuring frictional input sourcing, trade, and labor mobility. Our estimates show that HSR-driven improvements in buyer-seller matching are equivalent to a 9.28 percent reduction in domestic trade costs, generating welfare gains equal to 3.4 percent of 2011 GDP—over a quarter of total welfare growth during 2011–2017. These gains, however, are concentrated in coastal cities with higher concentrations of skilled labor, thereby exacerbating existing spatial disparities. Finally, we show that the actual HSR network comes close to the optimal allocation given the number of stations built—suggesting that it captured much of the potential welfare gains.

Keywords: Transport infrastructure, outsourcing, skill premium, china