The Impact of High-Speed Rail on Innovation : An Empirical Test of Companion Innovation Hypothesis of Transportation Improvement with China’s Manufacturing Firms

Transportation has long been shown to produce real impacts on productivity, urbanization, and economic growth, among others, companying with which innovation might take place. However, extant literature provides limited evidence on the companion innovation hypothesis of transportation improvement. The fast rollout of high-speed rail (HSR) in China is explored as a natural experiment to identify that hypothesis by matching it with three waves of innovation surveys on manufacturing firms from the Yangtze River Delta and Pearl River Delta, China's two most developed regions. The empirical results, obtained using the difference in differences method, show that HSR connection promotes firm innovation in peripheral areas, which are larger in the Yangtze River Delta, which increases over time but switches from process innovation to product innovation and stands under various robustness checks. Further studies show that HSR connection promotes innovation by arousing entrepreneurs' recognition of the importance of innovation and property rights protection, opening new sources for innovation and bringing about market size effects