Expressways, Market Access, and Industrial Development in China : Using Panel Instrumental Variables of Minimum Spanning Tree

Examining China’s manufacturing and transportation, we analyze how rapid expressway-network expansion fostered market access and industrial development. A domestic-trade model generates the market-access formula, estimatable equations, and economics for empirical findings. An estimation of trade elasticity identifies the formula’s critical parameter. A dynamic Minimum Spanning Tree produces panel IVs for market access with over-identification. An application of 1820 walled-city data solves MST’s target-city endogeneity. The Walled-City MST panel IVs have well-founded rationales and pass IV validity tests. Market access raised local manufacturing GDP; impacts were evident at the extensive margin and likely at the intensive margin. Good market access prompted capital deepening and regional decentralization. It geared local development towards high-tech or capital-intensive industries. First-tier cities remained magnets, but places in other prosperous coastal regions did not benefit. New expressways stimulated growth in less-developed inland areas with good market access. The heterogeneous responses and expressway-network expansion reshaped industrial economic geography