sustainability Article Transport Infrastructure Development and Economic Growth in China: Recent Evidence from Dynamic Panel System-GMM Analysis Xiao Ke *, Justin Yifu Lin, Caihui Fu and Yong Wang National School of Development and INSE, Peking University, Beijing 100871, China; [email protected] (J.Y.L.); [email protected] (C.F.); [email protected] (Y.W.) * Correspondence: [email protected] Received: 15 May 2020; Accepted: 9 July 2020; Published: 13 July 2020 Abstract: China’s growth miracle has been accompanied by a great leap forward in the development of transport infrastructure. This study examines and compares impacts from the quantity, quality, and structural aspects of transport infrastructure on regional economic growth in China as the country approaches an upper-middle income status. We also incorporate government’s development strategies into the framework for evaluating the growth effect of China’s transport infrastructure. Using a consistent and robust dynamic panel data system generalized method of moments (system-GMM) estimation for identification, we find strong evidence confirming that transport infrastructure contributes to regional economic growth in China during the period 2007–2015, as the country approaches its upper-middle income status. In particular, quality improvements in roads and railways and the structural upgrading of transport infrastructure significantly contribute to growth. However, we do not find that quantity expansion of the overall land transport network has a significant impact. Moreover, government development strategies that defy local comparative advantages not only detract from the growth rate but also potentially restrict the contribution of transport infrastructure. Lastly, the regional heterogeneity for Western China may differ across transport modes, particularly with respect to goods versus passenger transport and roadways versus railways. Keywords: transport infrastructure; quality; structure; economic development level; development strategy; dynamic panel system-GMM 1. Introduction This study assessed the effects of the quantity, quality, and structural aspects of transport infrastructure endowment upgrading on economic growth. Additionally, the study explored the possibility of a relationship between government development strategies and the growth impact from transport infrastructure. Since the 1990s, the World Bank has repeatedly emphasized that policymakers should not exclusively focus on the quantity of infrastructure investments and that improving the quality of infrastructure services is also vital. Moreover, the World Bank has found that in the past, low operating efficiency, inadequate maintenance, and insufficient attention to users’ needs have all contributed to reducing the development impact of these investments. Therefore, it is considered essential to improve the effectiveness of infrastructure investments as well as the efficiency of infrastructure service provision. After analyzing and summarizing lessons learned from experiences worldwide, the World Bank noted that infrastructure investment alone does not guarantee growth and that when the overall economic policy conditions are unfavorable, the returns from infrastructure investment decline [1]. In summary, the World Bank’s research has provided valuable guidance for countries to develop infrastructure according to their own unique characteristics. Sustainability 2020, 12, 5618; doi:10.3390/su12145618 www.mdpi.com/journal/sustainability Sustainability 2020, 12, x FOR PEER REVIEW 2 of 23 Sustainabilityvaluable2020 guidance, 12, 5618 for countries to develop infrastructure according to their own unique2 of 22 characteristics. China has experienced rapid economic growth and an expansion of its transport infrastructure China has experienced rapid economic growth and an expansion of its transport infrastructure over the last 40 years. Since the initiation of reforms in 1978, the Chinese economy has maintained an over the last 40 years. Since the initiation of reforms in 1978, the Chinese economy has maintained an annual growth rate of 9.5% in real terms, with the rate doubling every eight years on average annual growth rate of 9.5% in real terms, with the rate doubling every eight years on average according according to the National Bureau Statistics of China (NBSC). China’s transport infrastructure has to the National Bureau Statistics of China (NBSC). China’s transport infrastructure has emerged at an emerged at an astonishing pace, growing from almost nothing to an extensive network of roadways, astonishingexpressways, pace, railways, growing and from high almost-speed nothingrail (HSR), to and an extensive it is now the network most extensive of roadways, in the expressways, world. As railways,China has and successfully high-speed transitioned rail (HSR), from and a itlow is- nowincome the country most extensive to an upper in-middle the world. income As one China with has successfullythe world’ transitioneds second-largest from economy a low-income (see Fig countryure 1) to, the an upper-middletransport infrastructure income one endowment with the world’s has second-largestdiversified from economy simple (see quantitative Figure1), theexpansions transport (i.e., infrastructure an increase endowmentin the length has of diversifiedroadways and from simplerailways) quantitative to quality expansions improvements (i.e., an ( increasei.e., high in-speed the length roadways of roadways and railways) and railways) and structural to quality improvementsupgrading (i.e., (i.e., increases high-speed in roadwaysthe share of and government railways) and expenditure structural to upgrading improve (i.e.,maintenance increases and in the shareservice of government efficiency in expenditure the transport to sector improve; see maintenance Figures 2 and and 3). serviceThese facts efficiency set an inappropriate the transport context sector; seefor Figures studying2 and the3 ).causal These impacts facts set of anChina’s appropriate transport context infrastructure for studying on its theeconomic causal gro impactswth at ofdifferent China’s transportstages of infrastructure development. on The its fundamental economic growth questions at diarefferent as follows. stages W ofhen development. China reaches The upper fundamental-middle questionsincome status, are as follows.how do different When China aspects reaches of transport upper-middle infrastructure income endowment status, how upgrading do different contribute aspects ofto transport regional infrastructure economic growth? endowment Is there heter upgradingogeneity contribute in the impact to regionalacross these economic aspects? growth? Further, Iswhat there heterogeneityis the relationship in the impact between across the these transport aspects? infrastructure Further, what growth is the relationshipimpact and between the government’s the transport infrastructuredevelopment growth strateg impacties? and the government’s development strategies? FigureFigure 1. GNI1. GNI per per capita capita and and development development stages. stages Source:. Source: Data Data and thresholdsand thresholds between between income income groups Sustainabilityaregroups from the are2020 Worldfrom, 12, x theFOR Bank World PEER [2]. REVIEW Bank [2] . 3 of 23 Mileage 600 Road/10,000km 500 Expressway/1000km Railway/1000km 400 HSR /100km 300 200 100 0 1998 2003 2008 2013 1962 1968 1973 1978 1983 1988 1993 2018 Year FigureFigure 2. Road,2.Road, expressway, expressway, railway,railway, andand high-speedhigh-speed railway mileages mileages.. Source: Source: National National Bureau Bureau StatisticsStatistics of Chinaof China (NBSC). (NBSC). Transport expenditure share 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2006 2008 2010 2012 2014 2016 Figure 3.Share of government expenditure in the transport sector, 2007–2015. Source: NBSC. This study contributes to the growing body of literature that estimates the economic impact of transport infrastructure projects. Recent contributions find that in developed countries, highways and civil aviation promote trade, increase growth, raise skill premia, stimulate innovation, and facilitate decentralization and urban formation [3–5]. See Redding and Turner [6] for an extensive survey. China’s evidence suggests that the transport infrastructure impact differs according to development levels and transport infrastructure attributes. For example, Demurger [7] estimated the impact of transport infrastructure quantity (railway, road, and inland navigable water network length per square kilometer) from 1985 to 1998, when China was a low-income country. The author found that the overall transport quantity had a positive effect on provincial growth, but the impacts decreased with the level of economic development. In a similar research period, Fan and Chan-Kang [8] found that from 1982 to 1999, low-quality roads (mostly rural) rather than high-quality ones (expressways) contributed more to GDP, urban GDP, and poverty reduction. Hong et al. [9] considered both the quantity and quality of transport infrastructure and showed that from 1998 to 2007 (after China became a middle income country), land and water transport’s growth impacts were greater than those from airway transport. Lin [10] found that as China approached an upper-middle income level from 2008 to 2013, its HSR promoted urban employment and GDP. Other research has found that transport had zero or negative impacts on development outcomes. For instance, Faber [11] constructed hypothetical instruments