February 27, 2010

The Development of Road Networks in China: Miscalculations and Inequalities

Source: IFRI.ORG

China has some of the densest road networks of any developing country, accounting for the vast majority of paved roads among lower- and middle-income countries. However, statistical data at the national and provincial levels show two puzzling trends. First, growth in the length of highways has tapered off since 2003 despite policy shocks designed to produce the contrary effect. This trend applies to Eastern, Central, and Western China as the three differentiated regions in transport policy. Second, while lower-class roads have been shown to consistently deliver the greatest positive impact in rural areas, Central and Western China continue to emphasize higher-class roads despite their urgent anti-poverty and market networking needs.

Focusing on the processes of highway project formulation, approval, and financing, the author postulates that fiscal federalist institutions have strongly shaped the motivations of provincial leaders and bureaucrats as the key political entrepreneurs in bargaining over competing priorities and funding options. He argues that three variables - fiscal shortfall, procedural biases, and quality of private capital participation - account for the provincial officials' discriminating against different forms of financing and grades of roads. These variables suggest that inland provinces with fiscal inadequacy and poor quality private capital have perverse incentives to maximize their fiscal base and private rents by focusing resources on higher-class toll roads.


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