Roads to innovation: Firm-level evidence from People's Republic of China (PRC)

Although infrastructure and innovation play important roles in fostering a country's economic growth, discussion in the literature about how the two are connected is limited. This paper examines the impact of road density on firm innovation in the People's Republic of China. The analysis uses a matched patent database at the firm level and road information at the city level. Regional variation in the difficulty of constructing roads is used as an instrumental variable to address the potential endogeneity problem of the road variable. The empirical results show that a 10% improvement in road density increases the average number of approved patents per firm by 0.71%. Road development spurs innovation by enlarging market size and facilitating knowledge spillover.