Of highways and social inequality

Back in the 1990s, China launched an ambitious program to upgrade its road network, aiming to construct among others a 35’000 kilometer trunk highway system. As with most Chinese infrastructure projects the objective has been reached and there are now plans to build 85’000 kilometers of expressways over the next three decades.

But is the newly built highway network leading to less or more inequality in China? If one is to believe the results of a new World Bank study, the Chinese real income in 2007 would have been approximately 6% lower, had the National Expressway Network (NEN) not been built. More surprisingly, the NEN does not appear to have narrowed regional disparities, hence failing to promote economic catch-up. Some other results appear counter-intuitive:
- Real wage increases attributable to the network have been negatively correlated across the urban and rural sectors
- The very poorest areas have gained but not as much as the wealthier ones
- Rural areas do not appear to have received a significant stimulus from the presence of a large and diverse urban economy in the face of falling transport costs

In other words, the lack of overall catch-up thus far generated by the NEN is largely attributable to its effect on the urban sector of the Chinese economy, where the gains across prefectures have, on average, been larger than in the rural sector.

The good news? Unbalanced economic growth has been a feature of the development experience in all rich countries. In the long term, growth is likely to spread out again as firms take advantage of lower transport costs to escape congestion and higher factor prices.