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Cited by 351

The DOI matches its Crossref record; 63 of the 63 references it cites were found in a registry or an index.

Does infrastructure investment lead to economic growth or economic fragility? Evidence from China

Open access
Ansar, Atif, Flyvbjerg, Bent, Budzier, Alexander, Lunn, Daniel·2016·Oxford Review of Economic Policy
DOI 10.1093/oxrep/grw022
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Abstract

China’s three-decade infrastructure investment boom shows few signs of abating. Is China’s economic growth a consequence of its purposeful investment? Is China a prodigy in delivering infrastructure from which rich democracies could learn? The prevalent view in economics literature and policies derived from it is that a high level of infrastructure investment is a precursor to economic growth. China is especially held up as a model to emulate. Politicians in rich democracies display awe and envy of the scale of infrastructure Chinese leaders are able to build. Based on the largest dataset of its kind, this paper punctures the twin myths that (i) infrastructure creates economic value, and that (ii) China has a distinct advantage in its delivery. Far from being an engine of economic growth, the typical infrastructure investment fails to deliver a positive risk-adjusted return. Moreover, China’s track record in delivering infrastructure is no better than that of rich democracies. Investing in unproductive projects results initially in a boom, as long as construction is ongoing, followed by a bust, when forecasted benefits fail to materialize and projects therefore become a drag on the economy. Where investments are debt-financed, overinvesting in unproductive projects results in the build-up of debt, monetary expansion, instability in financial markets, and economic fragility, exactly as we see in China today. We conclude that poorly managed infrastructure investments are a main explanation of surfacing economic and financial problems in China. We predict that, unless China shifts to a lower level of higher-quality infrastructure investments, the country is headed for an infrastructure-led national financial and economic crisis, which is likely also to be a crisis for the international economy. China’s infrastructure investment model is not one to follow for other countries but one to avoid.

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Citations

Cites

Show all 63 references

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Cited by

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Metadata

Authors
Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D.
Venue
Oxford Review of Economic Policy
Publisher
Oxford University Press (OUP)
Published
2016
Volume
32
Issue
3
Pages
360-390
ISSN
  • 0266-903X (ISSN-L)
  • 1460-2121
DOI
10.1093/oxrep/grw022
OpenAlex
W2481954631
Cited by
351
References
63
FWCI
54.81
Type
journal article
Language
en
Open access
bronze
Funders
  • BT Group
  • University Of Oxford

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Ansar, A., Flyvbjerg, B., Budzier, A., & Lunn, D. (2016). Does infrastructure investment lead to economic growth or economic fragility? Evidence from China. Oxford Review of Economic Policy. https://doi.org/10.1093/oxrep/grw022

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