Political Distortions and Infrastructure Networks in China: A Quantitative Spatial Equilibrium Analysis

Using the timing of China's highway network construction and political leadership cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network's design and implementation are more likely to be closer to the actual network compared to the optimal network arising from a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate effects of distortions in the highway network. Altogether, aggregate income is 0.75 percent higher with the optimal highway network compared to the actual highway network. Counterfactual networks with political distortions simply modeled using standard iceberg transportation costs are shown to account for a portion of these welfare losses. Finally, we use light data regressions to show that political distortions to the optimal network are also associated with slower growth.