Transportation infrastructure, market integration and corporate innovation

Abstract

Innovation is the fundamental driving force that shapes micro-corporates’ competitiveness and promotes macroeconomic growth. In this paper, we systematically measure the stock of transportation infrastructure and the degree of market integration using China’s 30 provinces data from 2009 to 2019. On this basis, we investigate the impact of transportation infrastructure on corporate innovation. We find that transportation infrastructure contributes significantly to the quantity and quality of corporate innovation. The mechanism by which transportation infrastructure promotes corporate innovation is by influencing market integration. We further find that the channel through which transportation infrastructure promotes corporate innovation by affecting the integration of commodity markets is by broadening the size of corporate’ markets, while the channel through which transportation infrastructure promotes corporate innovation by affecting the integration of capital goods and labour markets is by improving the efficiency of resource allocation in factor markets. Our study provides new evidence on the effects of transportation infrastructure on economic growth.