Measuring the Social Return to Infrastructure Investments Using Interregional Price Gaps: A Natural Experiment

41 Pages Posted: 20 Dec 2005

Date Written: December 2005

Abstract

The objective of this study is to provide microeconometric evidence on the welfare gain of transport infrastructure investments. Specifically, I consider an investment in China that doubles the tracks of a one-thousand-mile-long railroad in 1994. This provides a quasi-experimental setting: the expansion in rail capacity only affects the trade of goods in one direction. I first estimate the impact of this investment on interregional price differences, finding that they are reduced by about thirty percent following the investment. I then derive a (partial equilibrium) measure transforming the estimated shrinkage of price gaps into welfare estimates. I find that the internal rate of (social) return of the investment may significantly exceed the costs of capital in China.

Keywords: Infrastructure, Transport, Railroad, China, Chinese, Price Gaps, Disequilibrium

JEL Classification: H54, O18, R41

Suggested Citation

Li, Zhigang, Measuring the Social Return to Infrastructure Investments Using Interregional Price Gaps: A Natural Experiment (December 2005). Available at SSRN: https://ssrn.com/abstract=871167 or http://dx.doi.org/10.2139/ssrn.871167

Zhigang Li (Contact Author)

University of Hong Kong ( email )

Hong Kong, HK
China
852-9722-3859 (Phone)

HOME PAGE: http://www.econ.hku.hk/~zli

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