High-speed rail and the spatial pattern of new firm births: Evidence from China

Abstract

This study examined the impact of high-speed rail (HSR) on the spatial patterns of the new firm births in China. Through a set of difference-in-differences regressions, we found that agglomeration economies and HSR access each play an important role in determining the spatial pattern of the birth of new firms. Overall, the number of new firms declined significantly in counties with HSR access. However, the average effect masks significant heterogeneity with respect to industry type and geographic location. More firms in the service sector cluster in urban districts due to HSR, while firms in the primary and manufacturing sectors move out to locations without HSR access. Among four Chinese regions, central China attracts the most firms, while the underdeveloped western and northeastern regions are less successful. These results suggest that the development of an HSR network increases regional inequality. We show that people find districts with HSR attractive, which boosts the demand within the service sector. However, population concentration can raise land cost, as the primary and manufacturing sectors are crowded out to other, less expensive locations. This study demonstrates that a grasp of firm movement patterns is critical to understanding how HSR reshapes the spatial distribution of economic activities.