Politics-driven Market Access and Its Cost: Evidence from China’s Grand Canal

Ying Bai, Xiaoyu Bian and Ruixue Jia

No 21951, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Transportation networks often radiate from national capitals, reflecting political priorities as much as economic logic. How costly is infrastructure built for politics rather than markets? We study China’s Grand Canal: when the Mongols moved the capital from the central plain to Beijing, the canal followed, bypassing the economic core it once served. Using a grid-year panel spanning five dynasties (8th–19th centuries), we show the route best suited to reach the capital predicts the canal’s actual path. This redesign reshaped market access and, through it, population. Counterfactual analysis shows the canal raised population by 2.5–6.1%, but its politically motivated redesign cost 1.1–2.2%.

Keywords: Transport infrastructure; Market access; Misallocation (search for similar items in EconPapers)
JEL-codes: N45 N75 O18 R12 (search for similar items in EconPapers)
Date: 2026-09
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