The direct and indirect effects of infrastructure on firm productivity: Evidence from Chinese manufacturing

This paper attempts to distinguish and estimate the direct and indirect effects of infrastructure on firm productivity. The latter arises from the infrastructure-agglomeration link and has been largely overlooked in the literature on infrastructure. An analytical framework is then proposed to estimate both effects. Finally, empirical results are obtained using large-scale firm-level survey data from China. Major findings include: (1) all the three kinds of infrastructure-road, telecommunication servers and cable-are found to directly promote firm productivity; (2) they also exert a positive indirect effect on firm productivity through the agglomeration channel; and (3) the empirical results are robust to different agglomeration indicators and different subsamples.