The distributional impacts of high speed rail: Evidence from China

Abstract

This paper develops a spatial general equilibrium framework to study the distributional impacts of high-speed rail (HSR) construction. HSR does not directly lower the trade costs but lowers the travel costs among cities. This encourages firms to gain larger market share in the destination city, and export to more distant markets. We estimate the matrix of travel costs among 279 prefectural-level Chinese cities by taking into account the real world geography. The model is calibrated to the Chinese economy to match stylized facts since 2005. We show that the improvements of passenger networks lead to higher inter-regional trade and increase the total real income by 3:07 percent. The cities unconnected to HSR are also found to enjoy income gain from the HSR construction. HSR construction directs more people to work in the inland region. Both labor mobility and international trade serve to amplify the income growth from HSR construction.