Can Time–Space Compression Promote Urban Economic Growth? Evidence from China's High‐speed Rail Projects

Published date01 September 2020
DOIhttp://doi.org/10.1111/cwe.12339
Date01 September 2020
©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences
China & World Economy / 90–117, Vol. 28, No. 5, 2020
90
*Shujie Yao, Cheung Kong Special Chair Professor of Economics, Chongqing University, China and Business School,
University of Nottingham (Ningbo), China. Email: yaoshujie@cqu.edu.cn; Jing Fang (corresponding author), PhD
Candidate, School of Economics and Business Administration, Chongqing University, China. Email: fangjing@cqu.
edu.cn; Hongbo He (joint corresponding author), Associate Professor, Business School, Hunan University, China.
Email: hongbo_he@hnu.edu.cn. This research was fi nancially supported by the National Social Science Foundation of
China (No. 18ZDA005) and the National Natural Science Foundation of China (Nos. 71673033 and 71573077).
Can Time–Space Compression Promote Urban
Economic Growth? Evidence from China’s
High-speed Rail Projects
Shujie Yao, Jing Fang, Hongbo He*
Abstract
This paper studies the effect of high-speed rail (HSR) on urban economic growth using
a panel data comprising 285 Chinese cities in 2007–2017. Combining the endogenous
growth model with a difference-in-difference analysis, we extend the horse-mass theory
to explain how China may use HSR to avoid the so-called middle-income trap. The paper
also examines the efficient boundaries of HSR and simultaneously studies HSR time–
space compression as well as the city neighboring effects on economic growth. It is found
that HSR’s efficient boundaries are within the range of 200–1,200 km for provincial
capitals and 50–300 km for prefecture-level cities. HSR stimulates economic growth
by approximately 0.6 percent, and the neighboring effect accounts for one-quarter of
economic growth. Three policy implications are drawn: (i) China needs to further reduce
the travel times between the inland provincial cities and Beijing, Shanghai or Guangzhou;
(ii) China should build a denser HSR network to maximize its economic impact on the
vast majority of cities; (iii) China needs to develop some powerful economic growth
centers in the inland areas to lead the development of their neighboring cities.
Key words: high-speed rail, horse-mass theory, middle-income trap, time–space
compression, urban economic growth
JEL codes: O18, O53, R11, R12
I. Introduction
China’s economic achievements have been remarkable in the past four decades since the
economic reform and opening up started in 1978. However, concerns still remain about
©2020 Institute of World Economics and Politics, Chinese Academy of Social Sciences
High-speed Rail Projects and Urban Economic Growth 91
unbalanced regional development and economic convergence (Raiser, 1998; Lin, 2003;
Chen and Zheng, 2008; Barro, 2016). The uneven distribution of capital and technology
in China means that the country’s economic development pattern for initial growth relies
on growth center development, which drives economic expansion in the peripheral areas
(Yao and Zhang, 2001a,b). Regional divergence could become worse over time if there
were no effective transportation system to reduce geographical barriers. This is one of
the reasons why China may be in danger of falling into the so-called middle-income
trap. To avoid the curse of the middle-income trap, Yao (2015, 2018) proposed the
horse-mass theory, which outlines a new structure of urban economic growth. According
to this theory, Chinese cities are regarded as “horses” (horses and cities are used
interchangeably) that agglomerate to form large “horse masses” (city clusters) that can
jointly escape the middle-income trap. Based on the hypothesis of convergence, the horse-
mass theory proposes two conditions necessary for China to avoid the middle-income trap:
(i) leading horses must continue to run after crossing the trap; and (ii) following horses
must run faster than the leading ones to catch up.
One of the most fundamental concepts in economic geography and urban economics
is that cities benefi t from agglomeration, which drives urban economic growth (Marshall,
1920; Duranton and Puga, 2001; He, 2008; Ahlfeldt and Feddersen, 2018). In our
study, cities are regarded to cluster together to form urban agglomerations (horse
masses), linked by chains, such as the information, communication and transportation
systems, including high-speed rail (HSR), highways, air transport, the internet, and the
like. China has many metropolitan areas, including some of the world’s largest urban
agglomerations. The urban agglomerations of BeijingTianjinHebei, the Yangtze River
Delta and the Pearl River Delta have formed around the three major cities of Beijing,
Shanghai, and Guangzhou, respectively. Agglomeration supports regional economic
growth and integration in China (Bai et al., 2012).
The essence of the horse-mass theory includes twofold: first, cities within each
cluster can easily converge because of the relatively short distances between them
and their respective growth centers; second, city clusters of low-level economic
development can converge with their high-level development counterparts through the
aforementioned chains, of which HSR is a new phenomenon with unique features that
deserves an in-depth study.
The chains can lower the barriers between cities and agglomerations through
facilitating the flows of production factors and reducing the transaction costs of
merchandise trade. This study focuses on the role of HSR as a special chain because
transportation infrastructure is an important means of achieving regional economic
growth (Démurger, 2001; Percoco, 2015; Donaldson and Hornbeck, 2016; Bernard et al.,

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