Conference Agenda

Transportation infrastructure is widely recognized for enhancing economic efficiency and regional connectivity. However, the very projects that reduce trade costs and stimulate industrial growth may also contribute to environmental degradation, raising an important question: can this apparent trade-off be reconciled? This paper investigates how highway expansion, through reductions in trade costs, influences the aggregate emissions intensity of industrial firms via its effect on resource allocative efficiency. To examine this relationship, I extend the model from \cite{10.1257/aer.20120549} by incorporating emissions as an additional dimension, drawing on insights from \cite{copeland2005trade}. The extended model derives conditions under which highway expansion improves industrial emissions intensity by enhancing resource allocation across firms. These findings underscore a potential mechanism through which infrastructure projects can align economic growth with environmental objectives.

Empirically, I examine the causal effects of highway expansion on industrial emissions intensity using detailed firm-level data from China. First, leveraging the identification strategy in \cite{wu2023road}, I show that Chinese highway expansion reduces markup dispersion within narrowly defined industries and leads to a decline in emissions intensity at the province level, validating the allocative efficiency channel. Second, employing geospatial highway data and an additional instrumental variable strategy, I find that highway expansion also reduces emissions intensity at the county level. These findings highlight a previously underexplored environmental co-benefit of transportation infrastructure. By bridging the gap between economic development and environmental sustainability, this study offers a novel perspective on the dual role of transportation infrastructure.