How Infrastructure Construction Reduces Market Segregation in China: Achievements and Problems

Fan Xin (范欣), Song Donglin(宋冬林) and Zhao Xinyu(赵新宇)
School of Economics, Jilin University, Changchun, China
Abstract: Theoretically, infrastructure construction helps remove domestic market
segregation and thus create a modern market system. Based on the theory of new economy
geography, this paper investigates the relationship between infrastructure construction
and market segregation using the Spatial Panel Dubin Model (SPDM) based on China’s
interprovincial panel data of 1993-2012. As shown by empirical result, the beggar-thyneighbor
problem existed persistently within China, infrastructure construction helped
remove market segregation and should be enhanced, infrastructure construction had
heterogeneous spatial spillover effects across periods, and market segregation behaviors
were heterogeneous across regions or localities. China should enhance infrastructure to
narrow regional gaps and step up cooperation among investors across regions to reduce
the adverse impact of geographical boundary, and create modern service-based local
governments, allowing the market to play a decisive role in resource allocation.
Keywords: infrastructure construction, spatial spillover, market segregation, Spatial
Panel Dubin Model (SPDM)
JEL Classification: O53, P16

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