The impact of high-speed rail on innovation: An empirical test of the companion innovation hypothesis of transportation improvement with China’s manufacturing firms

Garrison and Souleyrette II (1996) elaborated a companion innovation hypothesis which says that improvements in transportation energize innovation in other sectors by creating opportunities to accomplish old things well or do something new. However, existing literature provides limited direct evidence on this hypothesis. The fast rollout of high-speed rail (HSR) in China is explored as a natural experiment to test the hypothesis by matching it with three waves of innovation surveys on manufacturing firms from counties in the Yangtze River Delta and Pearl River Delta, China’s two most developed regions. The empirical results, obtained using the difference-in-differences method, show that HSR connection promotes firm innovation in peripheral areas, which is larger in the Yangtze River Delta and increases over time but switches from promoting process innovations to stimulating product innovation. Further studies show that HSR connection promotes innovation by arousing entrepreneurs’ awareness of the importance of innovation and intellectual property protection, opening new sources for innovation and bringing about market size effects.