Political Distortions and Infrastructure Networks in China

Illenin Kondo, Notre Dame

Abstract:

Using the timing of China's highway network construction and political leadership  cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network's implementation are closer to the actual network, compared to the counterfactual optimal network in a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate costs of distortions in the highway network. Overall, compared to the actual highway network, aggregate income is 1.45 percent higher with the heuristic optimal network and political distortions account for part of this welfare loss.