Speakers: Zheng (Michael) SONG is Wei Lun Professor of Economics and the Department Head at the Department of Economics, Chinese University of Hong Kong (CUHK), an outstanding fellow of the Faculty of Social Science at CUHK and a co-director of CUHK-Tsinghua Joint Research Center for Chinese Economy. He is also a senior fellow of ABFER and a fellow of Luohan Academy. His research focuses on Chinese economy and macroeconomics. His papers were published by leading academic journals including American Economic Review, Econometrica and Journal of Political Economy.
Paper: https://econ.hkust.edu.hk/sites/economics/files/2022-08/Zheng%20Song-Abstract.pdf
Abstract: We estimate the returns to infrastructure investments for each
city-to-city link in China’s road network. Using real-time GPS data from over
half a million trucks, we first identify congested and uncongested links based
on whether speed decreases with traffic density. We then estimate the
elasticity of traffic flows to the capacity of a link conditional on its
congestion status. We incorporate congestion heterogeneity into a trade model
with optimal route choices developed by Allen and Arkolakis (2019). Our
structural estimation shows that the model can replicate the main features of
traffic flow, speed and congestion in the data. The benefit of expanding the
capacity of a link is inferred from the estimated model. The cost of the
expansion is estimated from construction costs based on physical topography and
market value of acquired land. We find that about 64% of China’s intercity
links are uncongested and associated with negative returns. The returns are
much higher for congested links and the dispersion is generally large. While we
focus on marginal local improvements in individual link capacity and do not
quantify aggregate misallocation of the entire network, the large dispersion in
returns across links suggests there could be misallocation of road infrastructure
investment in China. To facilitate comparison, we also analyze real-time
traffic flow data for highways in England. In sharp contrast to China, almost
all intercity links in England are found to be congested.
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