Spillovers of Urban Road Infrastructure Investment and Operation: a Case Study Using Synthetic Control Method

This study evaluates the impacts of urban road investment and operation in China, especially the spillover effect attributable to the investment of urban road projects. Using the synthetic control method and difference-in-differences technique and taking the opening of Jiaozhou Bay Bridge and its Subsea Tunnel in China on 30 June 2011 as a natural experiment, this paper investigates the causal effect between urban road investment and its economic impacts. Results show that the project has a positive externality in terms of its contribution to the output and employment: taken the industrial relative output as outcome variable, no matter whether the covariates are controlled or not, the parameters of the interactive terms are positive; taken the industrial relative employment rate as outcome variable, the gap between the treated unit and its counterpart indicates a direct program effect for the treated city as well as a spillover effect across the cities within the sample province. Furthermore, the permutation test ascertains that the probability of achieving a spillover effect as large as the treated city is around 5.88 per cent. Overall, the investment and operation of urban road transportation infrastructure has a noticeable spillover effect. Our results are robust across a series of placebo tests.