Growth and Distributive Effects of Public Infrastructure Investments in China

Public infrastructure investments are seen as one of the key engines of economic growth in China. Yet, there is little quantitative evidence on the growth and distributive effects of public infrastructure investments (PII) in China. This paper applies a macro-micro simulation method, to assess the effects of PII on the national economy using an inter-temporal dynamic CGE model and its distributive effects on individual households using a microsimulation. The results showed that higher PII substantially raises productivity in all sectors and income in all household categories. Higher PII also helps reduce poverty and modestly improves equality. The results not only suggest that increasing PII can drive economic growth in China, but also that it is a useful strategy for the promotion of inclusive growth. In particular, China could consider investing more in rural infrastructure to reduce inequality between rural and urban households in the future