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Infrastructure investment and growth in China: A quantitative assessment

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  • Dinlersoz, Emin M.
  • Fu, Zhe

Abstract

During the period 2003–2016, China’s infrastructure investment as a share of GDP outpaced, by a large margin, the average GDP share of entire government investment in advanced, developing, or emerging economies. A dynamic multi-sector model is constructed to assess the growth effects of this extraordinary investment episode. The model features sectoral heterogeneity in infrastructure intensity and positive externalities from aggregate infrastructure for firms and consumers. Along the model’s transition path, infrastructure investment interacts with labor-augmenting technological progress and structural change in China to generate growth. The benchmark results suggest that infrastructure expansion accounts for 14% of China’s average annual growth rate over the period 2003–2016, but the expansion was socially excessive for nearly the entire period. The analysis examines the sensitivity of the results to the strength of infrastructure externality and quantifies the contribution of various factors to infrastructure-driven growth, including crowding out, structural change, and sectoral heterogeneity in infrastructure intensity.

Suggested Citation

  • Dinlersoz, Emin M. & Fu, Zhe, 2022. "Infrastructure investment and growth in China: A quantitative assessment," Journal of Development Economics, Elsevier, vol. 158(C).
    • Handle: RePEc:eee:deveco:v:158:y:2022:i:c:s0304387822000748
    DOI: 10.1016/j.jdeveco.2022.102916
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    More about this item

    Keywords

    Infrastructure; Government investment; Externality; Crowding-out effect; Structural change; Transitional dynamics; Distortion;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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