Politics-driven Market Access and Its Cost: Evidence from China’s Grand Canal
Prof. BAI Ying
Professor Department of Economics
The Chinese University of Hong Kong
Abstract
Using a grid-year level panel data covering the 8th century to the 19th century, we find that: (1) The relocation of the national capital from central China (during the Tang and Song dynasties) to northern China (in the Yuan, Ming, and Qing dynasties) resulted in the redefinition of the Grand Canal to directly connect the national capital to the prosperous regions in southern China. Specifically, the optimal route to the national capital could predict the actual waterway; (2) This relocation also altered each region’s market access, thereby reshaping the economic geography. A 1% increase in market access led to a 0.14% increase in population density; (3) Overall, the politics-driven transportation networks enhanced aggregate welfare. Removing the canal could result in a 4% – 11% decrease in the total population, but it also caused misallocation. The redefinition of the canal led to a 2.5% – 4% decrease in the total population.
