Expressways, GDP, and the environment: The case of China

Abstract

In a matched difference-in-differences setting, we show that China’s expressway system helps poor rural counties grow faster in GDP while slowing down growth in the rich rural counties, compared with the unconnected rural counties. This heterogeneity cannot be explained by a rich set of county characteristics related to initial market access, factor endowments, and sectoral patterns, but is consistent with the Chinese government’s development strategy that more developed regions should prioritize environmental quality over economic growth, while poor regions pursue the opposite. We further investigate the environmental outcomes and find that the expressway connection indeed makes poor counties adopt dirtier technologies, host more polluting firms, and emit more pollution than the unconnected counties do, contrary to what happens to the rich connected counties. These results imply that recognizing the GDP–environment trade-off can help explain the full implications of infrastructure investment and other development initiatives.