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GTAP Resource #4073

"Growth and Distributive Effects of Public Infrastructure Investments in China"
by Zhang, Yumei, Xinxin Wang and Kevin.Z Chen

In recent years, public infrastructure investments (PII) in China have grown rapidly, especially after the global financial crisis, and its scale is more than 10% of the total annual government expenditure. Most of the existing studies on the subject focus on its impacts on economic growth, and only a handful of academic studies consider their distributive effects. While, the continued widening of the income gap between China’s rich and poor is a key policy challenge and priority for the Chinese government. An integrated macro-micro simulation method is applied to qualitatively assess both the growth and distributive effects of PII in China.

An increase in public infrastructure investment drives economic growth. In the long run, real GDP would be accelerated, by approximately 4 percentage points, through improvements in productivity. Different sectors are impacted differently, due to distinct sectoral characteristics. For example, the construction and nonmetallic mineral products’ sectors gain significantly from the increased public infrastructure investment, while the labor-intensive textile industry loses in terms of competitiveness. The results also show that, overall, such an increase in public investments would not crowd out private investment spending. On the contrary, the latter is even expected to increase and, combined, enhance the stimulating effect on China’s economic development.

There are positive effects of the increased PII on poverty in both the short- and long-run. The national poverty headcount ratio is decreased by more than 2 percentage points (using the international poverty line, i.e. $1.25 per day) in the long-run. While it seems that this reduction result mainly from the raise in wage rate, the researchers also find that it is the rural poor who benefit the most, as more of them exit poverty than urban and migrant households. Equality also improves following increases in public infrastructure investment, not only within the group...

Resource Details (Export Citation) GTAP Keywords
Category: 2013 Conference Paper
Status: Published
By/In: Presented at the 16th Annual Conference on Global Economic Analysis, Shanghai, China; Partnership for Economy Policy
Date: 2012
Created: Zhang, Y. (4/3/2013)
Updated: Zhang, Y. (4/4/2013)
Visits: 682
- Dynamic modeling
- Economic development
- Other data bases and data issues
- Asia (Southeast)

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