Description: Department Seminar: Illenin Kondo (Federal Reserve Bank of Minneapolis)

Location: 368A Heady Hall

Contact Person: GianCarlo Moschini

Title: Political Distortions and Infrastructure Networks in China: A Quantitative Spatial Equilibrium Analysis",
joint with Simon Alder

Abstract: Using the timing of China's highway network construction and political leadership cycles, we document systematic political distortions in the road infrastructure network: the birthplaces of the top officials who were in power during the network's implementation are closer to the actual network, compared to the counterfactual optimal network in a quantitative spatial general equilibrium model. We then use the model to quantify the aggregate costs of distortions in the highway network. Overall, compared to the actual highway network, aggregate real income net of road construction costs is 1.76 percent higher with the heuristic optimal network. Political distortions due to favoring birthplaces account for approximately 0.2 percentage points of this welfare difference.