Determinants Of Infrastructure Investment

The Chinese infrastructures have been astonishingly increasing in the past30years, which greatly improve peoples’living standard and strongly support the national economy growth. In China, the development of infrastructure closely lies on the local government behaviors.This paper focuses on local government behavior and analyses the main factors that influence infrastructure investment in China from two aspects of the demand and supply. On the demand side, we deduce the logic of unprecedented growth in infrastructure caused by yardstick competition within fiscal decentralization system. In order to invite investment, local infrastructure be improved by yardstick competition. That is to say, infrastructure is improved as a result of investment attraction. This paper also acutely aware that infrastructure improvement is one of the means to stimulate investment, there are other means and those means may have an impact on infrastructure investment.On the supply side, we trace the evolution on land-transferring fees and emphatically make discussion on its expanding along with the acceleration of land marketization process. The scale of the land finance is important, but what really matter is the proportion of land finance to be used in infrastructure. So how land-transferring fees are legally requested to support infrastructure is also concerned by following up specific rules and regulations.According to the logic of infrastructure growth, some key indexes are built to fully capture the signification of yardstick competition, land finance, effort on offering preferential land price and preferential tax rate. Especially, we give a detail discussion about the reasonability of indexes setting. Regarding yardstick competition index, we believe that FDI completion happened meaningfully only within competitors with geographical proximity and a comparable level of GDP. We realize that there are duality in price of land-transferring and rate of tax in China, local government’s concession on land price and tax rate to be weighed as a level of effort that local government paid.Based on the provincial panel over the period of2003to2011, we start our empirical study both from national level and provincial level. In national level, we find that yardstick competition and revenue from land-transferring fees have positive effects on infrastructure investment, and that effort on offering preferential tax rate has substitution effects on infrastructure investment. GDP as well as medium and long term lending from banks are significantly positive with the increment of infrastructure investment. The result of empirical study also shows that some catch-up effect on infrastructure investment may exist among regions. The smaller the infrastructure capital stocks initially, the greater increment on infrastructure investment later.In provincial level, indexes of land finance and yardstick competition react differently in eastern provinces and the Midwest provinces. Revenue from land-transferring fees has positive effect on infrastructure investment in eastern areas, but it doesn’t in the central and western regions. On the contrary, yardstick competition has positive effects in the central and western regions, but it doesn’t in eastern provinces. GDP as well as medium and long term lending from banks are both significantly positive in eastern and Midwest provinces. Relatively, GDP support more in eastern than that in the central and western. Comparatively, Central and western provinces rely on loans more. Moreover, catch-up effect exists significantly in central and western provinces.Data analyses based on internal difference models show that land finance is significantly positive with infrastructure investment in the provinces that are not municipalities within eastern. Yardstick competition is significantly positive with infrastructure investment in autonomous regions inside the central and western provinces.