The impacts of highways on firm size distribution: Evidence from China

Abstract

This paper examines the impact of highway construction on the size distribution of manufacturing firms using Chinese firm and highway network data. I construct instrumental variables using historical and counterfactual road approaches to identify the causal effects of highway construction. I find that highway construction can increase firm size dispersion and market concentration. Areas near highways have a higher number of firms, more outsourcing activities, and more large firms; while areas further from highways have a higher share of new entry firms.