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| Roads and Innovation: New Evidence from Chinese Firms —Micro Evidence Based on Regional Heterogeneity |
| ZHANG Jie, ZHENG Jiaojiao
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Institute of China's Economic Reform and Development, Renmin University of China;
Institute of Scientific and Technical Information of China |
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Abstract Innovation is an important driving factor that determines the sustainable economic growth of a country or region. The relationship between transportation infrastructure and innovation has become the focus of Chinese and international scholars and policymakers. However, the literature is yet to reach a consensus on the relationship between transportation infrastructure and innovation. The Chinese government has long regarded the construction of infrastructure as an important strategy to promote economic growth. When China enters the transformation stage of innovation-driven development, a key question is whether its transportation infrastructure can continue to promote innovation, especially the independent innovation of firms. Thus, the ability to maintain innovation will be an important basis for the implementation of China's infrastructure strategy in the future. This paper finds that the literature presents inconsistent conclusions on the impact of highway infrastructure on innovation. This can be explained from a new perspective based on regional heterogeneity. We explore how highway infrastructure affects innovation based on three channel mechanisms: reduced information exchange costs, reduced human capital flow costs, and reduced transportation costs. To explain the impact of highway infrastructure on innovation from a micro perspective, we use firm innovation data from the “National Enterprise Innovation Survey Database” for the period from 2008 to 2014 to test the differential impact of China's urban-level highway density on firm innovation investment and the underlying mechanism. An important empirical finding is that highway density has a significant inhibitory effect on firms' investments in innovation. Furthermore, in terms of regional heterogeneity, highway density has a significant inhibitory effect on firm innovation in cities where GDP per capita is greater than average and in provincial capital cities within the province. However, it does not have this effect in cities where GDP per capita is less than average or in non-provincial capital cities within the province. Thus, it is evident that highway infrastructure has a significant inhibitory effect on micro-enterprise innovation in areas with a relatively high level of economic development and innovative enterprises, but in areas where the economic development level is relatively backward, there is no significant inhibitory effect on firm innovation. From the perspective of potential mechanisms, highway infrastructure impedes innovation activities by reducing the costs of exchanging innovation information and by reversing the flow of innovative human capital. This is the dominant mechanism through which highway infrastructure crowds out innovation in the Chinese context. Conversely, by enabling the export of enterprises' new products, highway infrastructure creates economies of scale, which promote corporate innovation. The regional heterogeneity in the impact of China's highway infrastructure on innovation results from the regional differences in the impact of this multi-layered mechanism. Specifically, in cities with high economic development levels nationwide or within the province, highway infrastructure substantially promotes innovative outsourcing activities, but has no significant impacts on innovative human capital or new products exports. In cities with relatively backward economic development levels nationwide or within the province, highway infrastructure does not have a significant negative impact on innovative outsourcing activities, and it substantially promotes innovative human capital and exports. This mechanism has led to a new pattern of development between developed and underdeveloped regions in China. This result does not align with the Chinese government's intention that the transportation infrastructure strategy should improve regions' market competitiveness in attracting investment and developing industries. In the future, China will not only apply practical measures, such as increasing the provision of livelihood support facilities and reducing high housing and rent prices to solve the problem of crowding out innovators in China's leading cities, but also continue to improve highway infrastructure in less developed cities to connect modern road network systems within and between regions.
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Received: 23 March 2022
Published: 16 July 2024
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