Public Infrastructure Investment and Domestic Trade Integration in China

Yingming Zhu, Dongwei Guo, Yao Zhang, Ziyan Zheng and Xin Zhang
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Yingming Zhu: Nanjing University of Science and Technology
Dongwei Guo: Nanjing University of Science and Technology
Yao Zhang: Nanjing University of Science and Technology
Ziyan Zheng: Nanjing University of Science and Technology
Xin Zhang: NanJing XiaoZhuang University

Hacienda Pública Española / Review of Public Economics, 2025, vol. 253, issue 2, 27-57

Abstract: This research constructs a two-region dynamic general equilibrium (DGE) model. Utilizing numerical simulations, it thoroughly reveals the mechanisms through which public infrastructure investment affects the integration of domestic trade and further examines the determining factors of the effects of public infrastructure investment on domestic trade integration. The research indicates that public infrastructure investment has a significant inverted U-shaped impact on domestic trade integration, meaning there exists an optimal scale of public infrastructure investment to maximize domestic trade integration. This is due to the linkage mechanism of public infrastructure investment affecting transaction efficiency in production trade, specialization of production, trade home bias, and thereby influencing inter-regional economic and trade relations as well as domestic market integration. The substitutability of products, congestion of public infrastructure services, and labor friction (overhead labor) significantly affect the effects of public infrastructure investment on domestic trade integration, with notable regional disparities. The findings have important implications for public infrastructure investment policies aimed at promoting the development of domestic trade integration.

Keywords: Public infrastructure investment; Domestic trade integration; Dynamic general equilibrium model. (search for similar items in EconPapers)
JEL-codes: B22 D58 F15 (search for similar items in EconPapers)
Date: 2025
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