Transportation Infrastructure, Agglomeration, and New Firm Formation : Evidence from China's National Trunk Highway Network

This study estimates the impact of China's National Trunk Highway Network (NTHN) on the formation of new manufacturing firms. Our empirical strategy explored changes in the spatial access of new firms to incumbent firms resulting from expansion of NTHN from 2000 to 2009. Overall, the entry of new manufacturing firm was found to be inhibited by the improved access to the same industries, but stimulated by improved access to different industries. Our finding also confirmed substantial regional and industrial heterogeneity. For example, the NTHN was found to significantly promote the establishment of new firms in counties, eastern and northeastern regions, and among relatively high-tech industries; in contrast, the NTHN hindered the establishment of new firms in districts, central and western regions, and among low-tech industries. The data also reveals that impact of the NTNH was weaker for relatively high-tech industries farther away from international ports and big cities. Our findings suggest that policymakers seeking to promote new firm formation and innovation clustering should optimize the spatial layout of highway networks and other transportation infrastructure