Transportation infrastructure, industrial spillover effect and economic growth

This paper establishes a two-sector model for analyzing the interrelation between transportation infrastructure expansions and remaining industry production growth in terms of the idea of Feder (1983). Transportation infrastructure sector is supposed to generate a spillover effect on the other sectors. The equation is estimated for 30 provinces in China from 1990 to 2007. This paper finds that the spillover effect would drive the economy to grow approximately 0.45 percent when given the 10 percent growth of transportation infrastructure sector. Besides, the spillover effect on the non-transportation infrastructure sector ranges from 0.441 to 0.931, which is comparatively large. Conclusion can be made that the spillover effect on the remaining sectors is very significant and the economy is influenced by the effect to some extent. It is a great issue to make full use of this spillover effect to help economic development. After the 4 trillion infrastructure investment plan of Chinese government, an important issue regarding transportation infrastructure is how efficiently the government manages the existing capital stocks.