The Impact of Infrastructure Construction on Economic Welfare: Evidence from China

Abstract

Investment in infrastructures is attracting more and more attention from both policy makers and entrepreneurs. We study the impact of infrastructures on economic welfare using a nationally representative microeconomic dataset – China Health and Retirement Longitudinal Study (CHARLS). The economic welfare of interests includes income, labor supply and self-reported health status. By constructing an index of essential facilities defined as the infrastructures that are necessary and essential for daily living, and by constructing an index of nonessential facilities are defined as the infrastructures which can raise the living standard but not mandatory to people's daily life, we identified a positive impact of both essential facilities and nonessential facilities on economic welfare, however, when these two variables are simultaneously included into the regression, the nonessential facilities turn insignificant, which suggests the importance the essential facilities over nonessential facilities. To be more specific, 1 unit increase in essential facilities index is associated with an increase in annual income by 2911.4 Yuan, with an increase in labor supply by 0.65 month, and with an increase in the probability of having a good self-reported health status by 2%.