Flying high in the sky: The airports decentralization reform and regional economic development in China

Abstract

This paper uses the airports decentralization reform in China, 2003–2004, to explore the impacts of management structure of transportation infrastructure on the operational efficiency and the regional economy. The DID estimation shows that the operational efficiency of reformed airports significantly increase after the reform. We use a geo-coded micro-level panel dataset of Chinese manufacturing firms to estimate the economic impact of this reform. Our triple difference estimation explores three-dimension firm-level variations: location (i.e., near versus far from reformed airports), industry (i.e., high-skill-intensive industries relative to low-skill intensive ones), and year (i.e., before and after the reform). We find out that the high-skill-intensive firms with better airport access experience 8.6% more reduction in the inventory level, 2.4% more increase in manufacturing productivity, and 2.5% more increase in the value-added after the reform. Consistent with the existing literature, we show that the reform increases external investment and expands market access. Placebo tests on unaffected airports rule out alternative explanations. Our results are robust against various alternative specifications.