High-speed rail and inventory reduction: firm-level evidence from China

ABSTRACT

Using a balanced panel of manufacturing firms from China between 2007 and 2013, we estimate that being connected to a high-speed rail (HSR) system leads to 9.5% reduction in local firms’ input inventory spending. The effect is stronger for downstream industries and private enterprises. A back-of-envelope calculation suggests that each dollar of HSR investment reduces input inventory stock by 12 cents, which is significantly larger than the effects found in previous studies based on highway or road investment. Declines in transportation and communication cost, as well as agglomeration effect, are identified as plausible mechanisms. Our findings reveal a micro channel through which improved transport infrastructure brings about economic gains, and contribute to the cost-benefit assessment of HSR investment.

KEYWORDS:

• Transport infrastructure
• high-speed rail
• firm performance
• inventory
• China

JEL CLASSIFICATION:

• D21
• H54
• O18
• R4

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Different stations start running in different months. In the reporting, we consider $\mathrm{s}\mathrm{t}\mathrm{y}\mathrm{l}\mathrm{e}{\mathrm{H}\mathrm{S}\mathrm{R}}_{\mathrm{c}\mathrm{t}}$ to be 1 if an HSR station starts to operate by end-August in year t. The findings are not sensitive to this choice of cut-off.

² Given the relative short span of our study, we assume that both transportation and communication cost intensity are technological characteristics that are time-invariant.

³ This detail is not released in the Chinese version of input–output accounts. We therefore adopt the US technology as a close proxy.

⁴ In these articles, task intensity for each occupation comes from the US Department of Labor’s Occupational Information Network database. The industry-level non-routine intensity measure is then constructed using occupation employment per industry as weights.

⁵ The geographic unit $r$ would be a township if it is in urban district, or a village if it is in rural county.

⁶ For better interpretation and comparison, measures of transportation and communication intensity are in natural logarithm, while that of agglomeration intensity is in percentage change.

Additional information

Funding

This work is supported by National Natural Science Foundation of China [grant number 71803206 and 71603172].