Roads to Growth: Evidence From Rural China

ABSTRACT The study explores the role of road construction in facilitating economic growth in China during the era of rapid economic growth using a dataset from satellite data and official statistics to model progress in rural China from 1995 to 2018. A long‐difference model with instrumental variables of topographic characteristics and historical roads reveals that building a 1 km road closer to a village leads to an annual economic growth of 0.75% in the sample period over two decades. We observe larger effects on economic growth in relatively more socioeconomically disadvantaged regions, and connecting local markets is more crucial to the rural economy than farther and larger markets. Furthermore, low‐tier roads connecting to villages offer a much greater economic benefit‐cost ratio than higher‐class roads. Our study underscores the importance of enhancing road connectivity in economically disadvantaged areas, and the cost‐benefit insights could be valuable for future investments of transport infrastructure in dispersed areas of other developing countries.