The impact of highway improvements on new firm location in underdeveloped regions: Evidence from China

This study investigates the impact of highway improvements on new firm location in underdeveloped regions. Both a two-way fixed-effects model and a long-difference model have been employed, using panel data from counties across Central and Western China, earmarked for national-level poverty eradication, for 2012 and 2020. The results show that highway improvements in underdeveloped regions exert a siphoning, rather than diffusion, effect on firm location in the short and long term. This effect, however, dissipates under four scenarios: higher resource endowment, larger market size, greater spatial distance from large cities, or smaller economic disparity with large cities. This indicates that firm location is also influenced by the interplay of “agglomeration” and “dispersion” in developed regions, and “exclusion” and “attraction” in underdeveloped regions after highway improvements. Additionally, the impacts of different highway classes vary, with inter-regional highways mainly leading to the siphoning effect, and intra-regional highways exerting a diffusion effect under the abovementioned scenarios. Finally, the siphoning effect is more apparent in capital- and technology-intensive industries than in labor-intensive industry, reflecting the varying development characteristics of these industries.