Infrastructure Investment and Inequality: Evidence from China

ABSTRACT This paper examines whether infrastructure investment can mitigate inequality using Chinese data. The findings indicate that increased infrastructure investment is related to a reduced urban–rural consumption gap. After establishing the primary effect, the analysis delves into exploring the underlying mechanisms. Channel analyses unveil that improved infrastructure can impact the consumption gap by reducing the income gap and facilitating trade. Heterogeneity tests demonstrate that infrastructure investment has a more pronounced marginal effect on the consumption gap in central and western regions compared with eastern and northeastern areas. Additionally, the effect is more prominent in regions with larger income gaps. Overall, our findings suggest a substantial pro‐poor impact of infrastructure investment.