Railway construction and FDI firm entry in Chinese cities

Many studies show railway construction promotes economic growth, but benefits vary across cities due to location and speed differences. Using a unique Chinese railway timetable database and firm registration data for over 300 cities from 2000 to 2017, this study examines how rail transportation time affects FDI entry. We find that reductions in rail time significantly increase FDI entry, with larger effects in cities closer to provincial capitals. This operates through a communication cost mechanism: service-oriented FDI relying on face-to-face interactions benefits most. Technology-intensive manufacturing responds strongly to rail improvements, while capital-intensive industries show negative effects, suggesting improved connectivity may concentrate economic activity. Notably, HSR opening promotes FDI in trunk cities but reduces it in non-trunk cities, revealing a resource siphoning effect. These findings highlight the need for targeted policies: expanding HSR stations in non-capital cities, optimizing rail planning in central and western regions, and supporting peripheral areas with complementary investments to ensure balanced regional development. Results are robust to various controls and endogeneity checks. • Using a uniquely compiled Chinese railway timetable database, this study accurately measures inter-city railway travel time reductions from 2000 to 2017. • Drawing on the Chinese Administration Enterprises Database, we track FDI firm entries across more than 300 prefecture-level cities over the same period. • We identify communication cost reduction as the key mechanism: railway improvements attract FDI primarily by lowering the time and expense of face-to-face interactions. • Consistent with this mechanism, the effect is concentrated in service-sector FDI and technology-intensive manufacturing, which rely heavily on tacit knowledge exchange and business networks. • Heterogeneity analyses further show that the effect is stronger in cities closer to provincial capitals, and that HSR opening benefits trunk-line cities but may siphon resources from non-trunk-line cities.