Local Only? The Regional Effect of the Metro

Abstract

In China, the feasibility of metros has been questioned because of concerns about their financial burden and their concentration in large cites. However, academics have shown greater tolerance, recognizing the extensive local externalities of metro systems. This paper contributes to the literature by extending the focus on metro externalities to the regional level. Firstly, based on the New Economic Geography theoretical framework, this paper hypothesizes that the presence of a metro in a large city can enhance the economic vitality of a smaller neighboring city. Secondly, using the Yangtze River Delta region of China as a case study, this paper employs the spatial Durbin model and the difference-in-differences model to demonstrate that a 1% increase in metro density in large cities correlates with a 3.6% increase in the density of new firms in smaller cities. Additionally, the density of new firms in the peripheral counties of smaller cities near the metro increases by 5.8%. The findings indicate that metro systems exert positive spillover effects at the regional level and do not monopolize the economic dynamism of smaller cities in China. Existing studies have undervalued the potential of metro externalities to enhance regional economic vitality. Therefore, it is recommended that the government consider relaxing restrictions on metro projects at an appropriate time in the future.