Summary： Economic growth is a core issue of economic research. The debate about the roots of economic growth has evolved with the development of economics. Early studies focused on factors of production, stressing the role of the accumulation of human and physical capital in growth. Since the beginning of the 21st century, economists have emphasized the importance of formal institutions as argued by Acemoglu et al. (2001) and Rodrik et al. (2004). Recently, the focus has shifted to the role of informal institutions, which are deeper rooted in society and embedded in the culture and history of a country. This strand of the literature includes Barro & McCleary (2003), Campante & Drott (2015), Nunn (2009), and Spolaore & Wacziarg (2013). Trust, the core of informal institutions, has received attention from Durlauf & Fafchamps (2005), Dearmon & Grier (2009), and Capie (2016). 

 Summary： Serious environmental pollution has become a major problem in China. However, the traditional governance mode reflects obvious administrative intervention and uncertainty and the environmental pollution situation in China has not been fundamentally reversed. To promote the construction of a normalization mechanism for environmental governance, it is important to improve the legalization of environmental pollution control, which has become an important direction of China's environmental governance reform in recent years.

Summary：China's growth is slowing down and its structural and environmental problems are worsening. The traditional growth model is not sustainable as it comes at too high a cost of natural resources and the environment; economic structural adjustments and industry upgrading is urgently needed. Achieving long-term sustainable and high-quality growth is the new task. Financial institutions have a large impact on the real economy through the allocation of financial resources, so green finance is important for sustainable growth. However, the current situation in China is that banks care little about the environment and a large amount of financial resources are allocated to heavy industries. The basic issue in green finance is the environmental responsibility of financial institutions. Should China's financial institutions be environmentally responsible? Our research answers these questions. Studies of green finance, environmental responsibility and sustainable growth are many, but few researchers have considered the issue of the environmental responsibility of financial institutions using sustainable growth theory. As we show, many studies of the relationship between environmental pollution and economic growth show that industrial development and technological progress are the two most important factors. Pollution in China is related to its unsound industrial structure and the misallocation of financial resources, which promotes excess capacity and hinders the adjustment of China's industrial structure. From the perspective of sustainable finance, financial institutions, because of their resource allocation role, should be responsible for the environment and sustainable growth. How can one prove that financial institutions influence sustainable growth? There is barely any research on this question. As growth quality becomes even more important than speed in China, the answer lies in the relationship between China's financial allocation of resources and the environmental cost of growth. In this study, we argue that because financial institutions have the power to influence the environmental cost of growth, they must be environmentally responsible. First, the financial resource allocation between polluting and non-polluting industries in China is investigated using listed company data following the work of Dong et al. (2019) and Wen & Liu (2019). We construct the marginal contribution using a more convincing industry classification based on industrial level waste discharge data. This allows us to analyze the causes of the allocation of financial resources. Based on the facts of financial resource allocation, we build an endogenous growth model with finance and an environment sector. This model differs from current models in that it explains how credit preferences can change the environmental cost of economic growth (pollution per GDP). When markets are perfect and information is symmetric, competition leads the financial resource allocation to the optimal level where long-term sustainable growth is possible thanks to technological progress. However, credit preferences for heavy sectors, which are caused by collateral preferences, harm the growth path and force people to choose between consumption and the environment. Although the pollution level in steady state is not necessarily higher due to environmental preferences in the utility function, the environmental cost of growth is always larger. To give empirical evidence, panel data analysis is performed on data from 30 Chinese provinces from 2005 to 2015. The empirical results support our theory and lead us to the conclusion that financial institutions should bear environmental responsibility due to their influence on the environmental cost of growth. By using a sustainable growth model to study the environmental responsibility of financial institutions, we contribute to the literatures on green finance and the environmental responsibility of companies. We argue that accounting for environmental responsibility and environmental risks is not only good for growth but also good for the long-term development of banks. Making better environment risk management decisions and paying more attention to long-term sustainability is more important now than ever before for financial institutions in China.

Keywords：Environmental Responsibility; Growth Quality; Financial Allocation; Sustainable Finance

JEL Classification：C30, G20, 010

Summary：We return to the theoretical foundations of Nordhaus (1982) to explore the impacts of greenhouse gases (GHGs) on the green development of economies. Our research results confirm two of the three major policy implications of Nordhaus' paper: externalities are at the core of environmental regulation behavior and different (optimal) environmental regulation methods lead to different (better) outcomes. The Kyoto Protocol (KP), the first global environmental governance program of the international community, rationally uses the externalities from North-South cooperation on clean production technologies instead of implementing a more radical “Pigovian tax” on countries. This means that the Clean Development Mechanism (CDM), a relatively mitigating international environmental regulation method, has had more positive policy effects.In this paper, we explore the strategic approach of developing countries to coping with the rise of international conservatism and the constant setbacks to global environmental governance. On June 1, 2017, U.S. President Trump announced that the federal government would cease to implement the Paris Agreement (PA) and immediately stopped follow-up treaty payments. As the largest developing country, how should China respond to this major change? Should it implement the PA and continue to actively participate in (or even lead) global environmental governance? The KP came into effect in 2005, before the conclusion of the PA. It undoubtedly provided a reference point for the design and operation of the PA, which was an improvement based on the experience with the KP. To some extent, the policy effects of the KP reflect the policy prospects of the PA for global energy conservation and green development. We regard the only CDM connecting the North and the South under the KP as a public policy experiment of international environmental cooperation. We manually collect spatial geographic information from 3,027 factory-level CDM projects in China and construct a spatial panel data covering 30,773 observation points from 2001 to 2012. The difference-in-differences method is used to empirically evaluate the KP and China's contribution to reducing emissions through international environmental cooperation.We find that the KP as represented by the CDM is effective in promoting GHG emission reductions. Given that GHG emissions have a sustained and far-reaching negative impact on the global climate and that China has undertaken nearly half of the global CDM projects, China has doubtlessly made important contributions to global climate governance. Despite the negative impacts of the Trump administration's announcement of its withdrawal from the PA, the increasingly severe global climate change situation and the Chinese Communist Party's national strategy of saving resources and protecting the environment require China to continue to participate in international environmental cooperation and to play an appropriate role in the international community.Unlike the domestic mainstream literature on environmental regulation which either focuses on mandatory environmental regulation methods like direct taxation, fines, and compulsory shutdowns or explores the impacts of a macro environmental policy change on the economy and society, we use micro-factory clean production projects and sewage data near these projects to conduct a more micro and detailed public policy evaluation study. This paper has three innovations. (1)We use the counterfactual framework of a natural experiment to better simulate the environmental benefits brought by the implementation of the PA to global green development. (2)The KP's effect on GHG emission reductions is demonstrated in the micro-geographic unit with CDM projects for the first time, enriching the research exploring the impacts of the KP and CDM on energy conservation, emission reductions and green development. (3)We evaluate China's contribution to emission reductions under the KP using panel data for the first time, responding strongly to some countries' accusations that developing countries like China are not proactively reducing emissions.

Keywords： International Environmental Cooperation; the Paris Agreement; the Kyoto Protocol; Clean Development Mechanism; Greenhouse Gas Emission Reduction

JEL Classification：Q51, Q54, F42

 Summary： Many empirical studies show a strong association between economic development and land urbanization. Land urbanization drives land use change and has altered the land use structure. The literature demonstrates that there is a negative relationship between land urbanization and ecological environment quality. However, it is not known whether land urbanization also improves environmental quality. In this paper, we answer this question theoretically and empirically.First, we analyze the mechanisms behind the impact of the land urbanization rate on environmental quality and how the impact changes across different stages of economic development in China. Then, we analyze the relationship between the land urbanization rate and environmental quality empirically using a spatially adaptive semi-parameter model and Chinese provincial panel data to verify the results of the theoretical analysis. Finally, we make policy suggestions based on the theoretical and empirical analyses. We construct a theoretical model to analyze the relationship between the land urbanization rate and environmental quality based on the dynamic optimization models of Turnbull (2004) and Litchberg & Ding (2009). We conclude that there is a U-shaped curve relationship between the land urbanization rate and environmental quality. Through the comprehensive use of land policy, environmental regulation policy, industrial policy, and fiscal and taxation policy, the government can make the relationship between land urbanization and the environment a positive one.Economic development is dominated by the extensive development model when the land urbanization rate is low. Whether local governments convert more farmland for industrial is affected by the economic development level, industrial structure, technical level and the GDP and tax assessment of the central government. The industrial production process causes great damage to the environment in this case. All of these factors reduce the environmental quality.Economic development is dominated by the intensive and economic development model when the land urbanization rate is high. Agricultural land is mainly used for tertiary and high-tech industries. The government strengthens environmental regulation policies to control the degree of environmental pollution, reducing the impact of production processes on the environment. The willingness of residents to pay for the environment increases as the income of residents increases. This means that the environmental quality starts to increase when the land urbanization rate is sufficiently high.Reverse causality and omitted variables lead to endogeneity between land urbanization and ecological environment quality. A spatially adaptive semi-parametric model is applied to avoid the endogeneity problems a parametric model would have and to overcome the curse of dimensionality in a non-parametric model. Our econometric analysis verifies the hypothesis that the relationship between the land urbanization rate and the environmental value per capita is a U-shaped curve. Sample data show that the eastern region of China is generally on the right side of the U-shaped curve, while the central and western regions are mostly on the left side of the U-shaped curve. The Chinese central government should strengthen its environmental regulation policies, land policies and other measures to adjust the industrial structure so that each province enters the stage where increasing land urbanization increases the environmental quality as soon as possible.Based on the theoretical and empirical analysis, we make the following policy suggestions. (1) The government should strengthen its environmental regulation policies to protect the environment.（2）The government should further implement the policy of reducing construction land; (3) The government should implement cross-regional transactions of land indicators to protect basic farmland and ecological spaces.

Keywords： Land Urbanization Rate; Ecological Environment Quality; Dynamic Optimization Model; Spatially Adaptive Semi-parametric Model

JEL Classification：R11, R52, R58

Summary： Designing a reasonable regional CO2 emission permit allocation mechanism is important for China to achieve its peak emission goal and to optimize its total emission abatement costs. The Chinese government officially launched the construction of the national emission trading scheme (ETS) at the end of 2017. The national ETS will first cover the electricity generation sector and gradually expand to other industrial sectors. The emission permits will be freely allocated using a benchmark method. There are three key questions for constructing the national ETS. First, how to ensure effectiveness so that the overall emission control target is achieved. Second, how to improve the efficiency of the carbon market to minimize total emission abatement costs. Third, how to balance social equity and the efficiency of environmental policy. To answer these questions, we must study the design of the optimal permit allocation mechanism for China's national ETS.In this paper, we start by analyzing the marginal abatement cost curve (MACC) which is separated into two parts by carbon emission efficiency. One region's potential carbon reduction amount is determined by the part that is not related to low-carbon technology. When the social planner allocates emission permits by maximizing the national total output, economic efficiency is achieved. The marginal abatement cost of each region is equalized under the first-order condition of this optimization problem. The corresponding permit allocation mechanism is a multi-criteria mechanism which includes the total emission reduction target, total emission amount, emission intensity, and carbon emission efficiency. In the empirical part, patent data related to environmentally sound technologies are used to measure the low-carbon technology development level in each region. Both consumption-based and production-based carbon emission efficiencies are estimated using stochastic frontier models and used in a numerical simulation. Looking at the carbon emission efficiency trend in different provinces, most regions show a downward drift during the 11th Five-Year Plan period. During the 12th Five-Year Plan period, most regions have a turning point in carbon emission efficiency and show a gradual upward trend because of the compulsory carbon emission intensity constraints. For consumption-based efficiency, output-based allocations (OBA) and emissions-based allocations (EBA) lead to 1.61 percent and 0.47 percent larger aggregate output losses than when using the multi-criteria allocation mechanism, respectively. For production-based efficiency, OBA and EBA lead to 0.68 percent and 0.21 percent larger aggregate output losses, respectively. The simulated allocation results differ between consumption-based and production-based allocations. Energy production provinces undertake more emission reduction responsibilities using production-based allocation. For example, Inner Mongolia reduces around 65 percent more emissions using consumption-based efficiency. Comparatively, electricity inflow provinces undertake more emission reduction responsibilities using consumption-based allocations. For example, Hebei reduces around 83 percent more emissions using production-based efficiency.Based on our theoretical analysis and empirical results, we give the following policy suggestions. First, when considering the allocation of carbon emission allowances, China should use multiple criteria such as output, historical emissions, and technological efficiency to avoid “spurring a willing horse”. Second, under the optimal multi-criteria allocation framework, firms invest more in low-carbon technology to obtain more emission permits. Thus, endogenous low-carbon technological progress is realized in the long term. Third, permit allocation results are quite different between consumption-based and production-based allocations for some provinces. Therefore, the impacts of different allocation results on regional equity must be fully considered. Fourth, the multi-criteria allocation mechanism proposed in this paper can also be applied to firm-level permit allocations in the future.

Keywords： CO2 Emission Permit Allocation; Carbon Emission Efficiency; Stochastic Frontier Analysis; Low Carbon Technology Patent

JEL Classification： C33, C60, Q5

Summary： China's decentralized governance structure has contributed greatly to economic development by generating intergovernmental competition for capital (Montinola et al., 1995; Qian and Weingast, 1997). However, intense governmental competition also leads to “race to the bottom” problems, such as local protectionism, infrastructure segmentation, and poor environmental stewardship (Young, 2000; Cai et al., 2016; Tombe and Zhu, 2017). With the rising sophistication of production processes and the increasing scope of economic specialization, interregional cooperation is becoming increasingly important. Concerned with the lack of regional coordination and its negative impacts on the sustainability of economic growth, the 19th CPC National Congress put forward the coordinated regional development strategy. While the literature devotes much effort to exploring the benefits of fiscal decentralization around the globe, studies of the costs of decentralization are relatively rare. This paper argues that decentralization creates incentives for competition but leads to a lack of coordination (Garicano and Rayo, 2016). When there are externalities to economic activities, local governments strategically reduce public investments at their borders, resulting in border effects in regional development. To support this argument, I use one simple model and two sets of empirical tests.First, I build a public investment model of local governments with positive spillovers to illustrate the mechanism of border effects under a decentralized governance structure. If the externalities of public investment decrease with distance, it is optimal for an output-maximizing local government to invest less at the border of its jurisdiction. The lack of public investment at borders results in the underdevelopment of these regions. There are no such border effects with centralized governance. One important prediction of this model is that border areas enjoy more public investment and hence faster economic growth when the governance structure shifts from decentralization to centralization.Second, I use a county-level dataset to document the relative underdevelopment of provincial border counties. After controlling for factors that potentially affect local productivity levels (such as market access, geographical conditions, cultural identity and human historical activities), I find that counties located near provincial borders have significantly lower average night-time light and per capita GDP and that this gap widens over time. Furthermore, I show that transport infrastructure investments dominated by provincial governments display significant border effects after controlling for local characteristics; border effects are not significant for in the investments initiated by the central government.Finally, I exploit a policy shock to examine whether improving intergovernmental coordination reduces border effects. Using point-level night-time light data and difference-in-differences estimation, I find that city-county mergers, a reform that strengthens the coordinating power of prefecture governments and so is a form of centralization, improves the relative development of border areas lying between urban districts and merged counties. This result is robust to alternative specifications and choices of city centers. In addition, the policy greatly reduces resource misallocation (measured based on the method of Hsieh & Klenow (2009)) between districts and merged counties. Both results satisfy the assumption of a common trend between treatment and control groups.The findings of this paper have important policy implications for China's regional development strategy. Given the central role of local governments in China's regional development, one important implication for the design of future regional policies is that while it is important to maintain incentives for local officials to compete, establishing a coordination and interest-sharing mechanism across governments is essential for achieving the harmonious development of regions proposed by the 19th CPC National Congress.

Keywords： Border Effects; Decentralization; Externalities; City-county Merger; Night-time Light

JEL Classification： H77, R11, H41

Summary：The global economic situation has become increasingly complicated and China's economic uncertainty has increased with the increasing complexity of the economic structure. The rapid expansion of shadow banking, internet finance and local government debt has accelerated the exposure to systemic financial risks. In October 2017, the Governor of the People's Bank of China (PBC), ZHOU Xiaochuan, pointed out that China should focus on preventing a “Minsky moment” and work to ensure that there is no outbreak of systemic risks. After the 19th CPC National Congress, the Chinese government stated clearly that preventing and controlling systemic financial risks and promoting a virtuous circle in the financial sector and real economy should be the focus of the government's future economic work.Motivated by the growing concerns about the risk in the financial system and the increasing economic uncertainty faced by China, we provide insights to better understand China's financial risks and its policy uncertainty. China is an excellent setting for studying monetary policy uncertainty for the following reasons. First, China is an economy transitioning from a central-planned system to a market-based one. A dual-track or gradualist approach has been adopted to handle the fundamental issues, preparing Chinese officials to face economic conditions and a policy environment that they have never experienced before. “Crossing the river by feeling the stone” has been the hallmark feature of China's market liberalization reform, which has also contributed to the underlying uncertainty associated with China's economic policy. Second, the unique characteristics of China's monetary policy leads to uncertainty. The PBC does not follow the standard one-instrument operating procedure that most developed economies use. Instead, they use multiple tools to deal with various tasks, including both conventional tools, such as M2 and interest rates, and novel tools, like short-term liquidity operations, standing lending facilities and pledged supplemental lending. However, the public does not know when and how these policy tools should be used, giving rise to uncertainty about China's monetary policy. In addition, the monetary policy uncertainty in the U.S. has also increased substantially, especially since President Trump took office in the White House. This might spillover to China by impacting China's monetary policy-making and implementation.In this paper, we measure China's monetary policy uncertainty and investigate the impact of monetary policy uncertainty on default risks and the real economy at the macro level. We incorporate stochastic volatility into monetary policy rules to introduce monetary policy uncertainty, leading to a nonlinear DSGE model with monetary policy uncertainty and risk shocks. We use this model to examine the impact of monetary policy uncertainty on default risks and the real economy. Our main contributions are as follows. (1) Following Jurado et al. (2015), we give a specific measure of China's monetary policy uncertainty using a high-dimensional factor model in a data-rich environment. We then empirically investigate the impact of monetary policy uncertainty on banks' default risks and the real economy. (2) We incorporate the risk shocks of Christiano et al. (2014) into the BGG model of Bernanke et al. (1999) and introduce stochastic volatility to create monetary policy uncertainty. This results in a nonlinear DSGE model featuring financial frictions, uncertainty shocks and risk shocks. We use this model to theoretically examine the impact of monetary policy uncertainty shocks on default risks and the real economy.We have two main conclusions. (1) The increase in the uncertainty of monetary policy leads to increases in default risks and declines in output. (2) The rise in default risks further aggravates the effect of monetary policy uncertainty on output. This study has important policy implications for understanding the economic effects of China's monetary policy uncertainty, preventing and resolving financial risks and promoting a virtuous circle in the financial sector and the real economy.

Keywords： Monetary Policy Uncertainty; Default Risks; Stochastic Volatility; Nonlinear DSGE Model

JEL Classification： C19, E32, E40

Summary：China has reduced its tariff and non-tariff barriers since the 1990s as the main components of its trade liberalization policy. This has led to a large amount of imported foreign goods, resulting in more diversity in product selection and lower prices because of an unprecedented competitive influence on the corresponding domestic commodities. Tariff transmission, reflected by the extent of tariff reductions' impact on the domestic retail market, can differ significantly across regions because of geographical characteristics and economic development. It is necessary and vital to analyze tariff transmission and its various effects on retail markets because the prices of consumer goods are closely related to residents' lives. In addition, there are controversies over the economic performance of high-speed rail (HSR) construction in China. HSR diverts passengers from regular trains, releasing transportation resources for freight and improving the efficiency of traditional railway transportation. Reduced costs and time from ports resulting from HSR may increase the consumer market competition caused by trade openness. In this paper, we explore the diverse influences of import tariff declines on retail markets from the perspective of HSR construction.Studies often concentrate on enterprise performance from the production perspective and intermediate market by trade liberalization, such as trading behavior (Antoniades, 2016). However, the immediate impact of tariff reductions on China's domestic retail markets is still unknown due to a lack of data. Some studies focusing on tariff transmission mechanism both ignore regional domestic differences and rely on resident survey data to calculate commodity prices without theoretical support (Nicita, 2009; Marchand, 2012; Han et al., 2016). We accurately uncover the tariff mechanism by matching the retail prices of commodities in different cities monitored by the China Price Information Center with import tariffs. Furthermore, we analyze the tariff transmission mechanism for different areas and products by combining HSR data with information on cities. This enriches our understanding of tariff transmission with urban heterogeneity in one economy. By directly considering the impact of HSR on consumer goods prices from a micro perspective, we measure residents' welfare due to HSR's contribution to rail resources, adding to research on HSR construction.To analyze the positive effect of HSR on trade openness in China, we first build a theoretical model indicating how tariff reductions influence domestic retail prices that allows for different effects for different cities and goods. Then, we use the difference-in-differences approach to analyze the relationship between tariff reductions, HSR and retail prices to understand how HSR contributes to tariff transmission and how this effect varies for different commodities and different locations. The empirical analysis confirms the existence of the transmission mechanism; import tariff reductions are beneficial for lowering local retail prices via increased competition. We also show that HSR has a positive influence on tariff transmission, with the effect varying for different goods in different locations. The positive effect is more significant for non-perishable goods and coastal cities than for perishable goods and inland cities.This paper has important policy implications. Our results indicate that HSR construction promotes the function of trade openness, with tariff reductions leading to lower prices of consumer goods in domestic markets because of competition. The government should pay more attention to the construction of infrastructure and should alleviate pressure on the railway passenger transport to release capacity for freight so that trade openness can have a more effective impact on domestic consumer prices and improve the welfare of residents by providing a wider range of commodities at lower prices.

Keywords：Tariff Transmission; Regional Competition; Trade Cost; Consumer Prices; High-speed Rail; Transportation Mode

JEL Classification： D40, F14, O18

Summary：The 19th CPC National Congress report points out that the key problem in China's economy has changed from high-speed growth to high-quality development supported by supply-side reform. Moreover, it is industrial upgrading and attempts by the service industry to reach international standards that make up the access unavoidable in the promotion of supply-side reforms. In the experience of developed countries, economic growth significantly derives from the expansion of and optimization in the service industry, but the situation is different in China, which features the coexistence of rapid economic growth and a lag in the service industry. Why does this abnormal phenomenon exist in China? An explanation based on the perspective of governance is rare in studies of China.Building on our theoretical analysis, we use data collected from 230 local municipal government working reports from 2004 to 2014 with a fixed effects model and the instrument variable method to empirically document the impacts of the top-down amplification of economic growth targets, constraint characteristics and over-fulfilled economic growth targets on service industry upgrading. We have four main findings. (1) The top-down amplification of economic growth targets significantly inhibits the upgrading of the service industry. (2) Compared with hard constraints vocabulary such as “above” and “make sure to”, soft words in growth targets improve service industry upgrading. (3) Excess in the fulfillment of economic growth targets is not conducive to the upgrading of the service industry, especially when the economic growth target is inflexible. (4) The results of the intermediation mechanism test show that the top-down amplification and the hardness of economic growth targets cause the misallocation of resources and obstruct service infrastructure upgrading. These empirical results are robust to consideration of the problems of endogeneity and conservatism.There are three main contributions of this paper. (1) From the perspective of economic growth targets, we answer the question of why rapid economic growth and a lag in the service industry's upgrading coexist in China. This is both helpful for understanding the plight of Chinese industrial restructuring over the long term and compensates for the lack of research on economies in transition and industrial structure change theory. (2) In terms of data, we collect the economic growth targets for 230 cities from 2004 to 2014 from government working reports to exploit the effect of economic growth target constraints on the upgrading of the service industry. We construct indicators to characterize the different constraint characteristics of economic growth goals, making our findings much more innovative. (3) In terms of research significance, the conclusions based on the perspective of economic growth target constraints help us understand why it is difficult for China to upgrade its service industry. Our findings are meaningful because they suggest a solution for promoting service industry upgrading by adjusting economic growth targets, which contributes to economic modernization.Based on these conclusions, we make the following three suggestions. First, the top-down amplification effect means that lower level governments face more pressure from economic growth targets, restraining the upgrading of the local service industry. Therefore, higher level governments should consider the top-down amplification phenomenon in the hierarchical government system when setting economic growth targets and avoid setting too high initial targets. Second, both the central and local governments should leave room when formulating economic growth targets. Compared with hard constraints vocabulary such as “above” and “make sure to”, soft words like “up-down”, “left-right” and “between” in growth targets are more conducive to the local service industry infrastructure. Third, the government needs to weaken its assessment of economic growth targets and should consider incorporating an index of the service industry's structure upgrade into the existing government economic targets system in China.

Keywords： Economic Growth Target; Top-down Amplification; Upgrading of Service Structure; Factor Misallocation

JEL Classification： O21, P16, L52

 Summary： In this paper, we provide a theoretic and empirical framework for evaluating the impacts of road infrastructure on economic growth. We emphasize that road infrastructure directly affects household consumption and economic growth. This consumption channel is mostly ignored in the literature, which focuses on the impacts of transportation infrastructure on supply side factors.Starting with an overlapping generations framework, we develop a simple model featuring road infrastructure and private car purchases. We assume that roads are a public good financed by government tax income. Roads both directly facilitate economic activities and affect household consumption decisions, especially expenditure on private cars. This is because the household utility of using a private automobile is affected by the availability of roads. As a result, public investment in road infrastructure influences the household consumption bundle, further promoting economic growth. This new channel of road infrastructure's contribution to economic growth is called the consumption effect. Our conceptual model leads to five propositions describing the underlying mechanisms through which the government's public investment in road infrastructure affect household consumption and economic growth. (1) As the government invests a higher share of total output in road infrastructure, the equilibrium capital-road ratio decreases, meaning that private capital becomes relatively scarce. (2) The output growth rate is positively associated with the growth rate of road infrastructure; as the share of public investment increases, the economic growth rate first increases and then decreases. (3) The share of household expenditure on private cars increases as road infrastructure improves. (4) The estimated growth rate of the economy is higher when accounting for the new channel through which road infrastructure affects household consumption decisions. (5) As the mileage of roads increases, the benefit from this road consumption channel diminishes. To verify this consumption channel of road infrastructure, we construct a panel dataset of Chinese provinces from 2000 to 2012. We use the total length of all types of roads as the primary indicator of road infrastructure; we also calculate a weighted road length index as an alternative measure using principal component analysis. The main empirical analysis of this paper has two parts. In the first part, we regress provincial GDP on road length and the number of private cars and control for railways, capital stock and labor inputs. We also estimate the relationships between the growth rates of output, roads, and private cars. These baseline results show that both cars and roads are significantly correlated with economic development. In the second part, we empirically verify the underlying mechanisms derived from the theoretic model. We show that the provincial capital-road ratio is significantly negatively correlated with the road investment rate. This indicates that private capital becomes relatively scarce because public investments crowd out private capital. We also explore the link between household consumption and access to road infrastructure as measured by road density. Our results show that the number of private cars and the share of expenditure on private car purchases are significantly higher in provinces with higher road densities after controlling for income and regional fixed effects. Finally, we revisit the impact of roads on economic growth. We show that both road investment and road density demonstrate inverted U shape patterns with growth rate. These findings are consistent with the propositions derived from the model.This paper contributes to the literature by highlighting the consumption effect of infrastructure investments on economic development. Our results have two important policy implications. First, the benefits of public infrastructure investments might be underestimated because the literature ignores this consumption channel, leading to insufficient infrastructure investment. Second, to take advantage of this consumption effect, the design of public infrastructure is very important as the planner must consider the responses of both firms and households.

Keywords： Road Infrastructure; Economic Growth; Car

JEL Classification： H41, L92, O18

Summary：China's macroeconomic efficiency is an important area of economic research. The prevailing methodology is to use methods based on neoclassical economics to calculate the total factor productivity (TFP) of the Chinese economy. This serves as a basis for evaluating economic efficiency and the potential growth rate. Due to differences in calculation methods and data, the TFP estimation results are inconsistent. These calculation methods also do not take into consideration the impacts of the macro production structure and the income distribution structure on the TFP. From a theoretical perspective, both the macro production structure and the income distribution structure have direct impacts on efficiency. Therefore, it is necessary to construct a theoretical framework of macroeconomic efficiency that accounts for the dual influences of income distribution structure adjustments and production structure changes, which will provide theoretical guidance for future empirical research.In the third section of the second volume of Das Kapital, Karl Marx lays out the two-sector reproduction schema which includes production goods and consumption goods. This is a fundamental framework for analyzing the macroeconomy, production structure and income distribution in political economy. In recent years, some scholars, based on this theory, have used China's macroeconomic data and provincial panel data to conduct empirical research and find that the trends of transitions for both the economic structure and the income distribution structure basically follow the theoretical predictions of Marxist political economy. This demonstrates that the two-sector reproduction model has a strong potential in real economic investigations. However, classical political economic theories do not systematically integrate fixed capital compensation and renewal in their formal reproduction schema. They also do not discuss in depth how the income distribution structure can be adjusted to ease the contradiction between relative surpluses of population and capital. Thus, extending the classical two-sector reproduction schema to a three-sector reproduction scheme encompassing a fixed-capital sector, production goods sector and consumption goods sector is important as it helps to understand the impacts of the production structure and of changes in the structure of income distribution on macroeconomic efficiency. This forms an analytical political economy framework for aggregate supply and aggregate demand.Using this theoretical basis, we do the following. First, we construct a three-sector general equilibrium model, expanding classical reproduction theory in light of Marxist political economy and providing a theoretical framework for examining the relationship between productive efficiency and structural changes. Second, we use this new model as the foundation for an index for evaluating macroeconomic efficiency which reflects the degree of realization of the optimal distribution structure of wages and profits under the established production technology conditions. Third, we use China's input-output table to calculate macroeconomic efficiency between 1987 and 2015. Under the conditions of joint production and wage prepayment, the equilibrium solution of the three-sector production price system is derived to calculate the wage-profit curve that reflects the optimal income distribution relationship and the actual coordinates of the Chinese economy. These results assess the dynamic changes in China's macro efficiency. We show that since the end of the 1980s, China's macroeconomic efficiency has been at a relatively high level. Since 2007, however, China's macroeconomic efficiency has showed an obvious decline. The main innovation and contribution of this paper is that we propose a quantitative macro political economy model and conduct empirical research to provide a feasible analytical framework for systematic research on macro structure adjustments and efficiency changes. We demonstrate that Marxist political economy is applicable to the study of macroeconomic performance and long-term structural changes. This is a promising direction for the future development of Marxist political economy.

Keywords： Fixed Capital; Marx-Sraffa System; Three-sector Model; Wage-profit Curve; Macro-efficiency

JEL Classification：B51, O47, P26