Facilitating Investment Flows: Evidence from China’s High-Speed Passenger Rail Network

This paper investigates how transportation networks shape firms' geographic footprint byreducing information asymmetry associated with distant investments. Exploiting the staggeredexpansions of China's passenger high-speed rail (HSR) network, we document that the amountof intercity investment between a pair of cities increases by 45% with the introduction of anHSR line connecting them. We enhance the causal inference by applying high-dimensionalfixed effects, and focusing on non-nodal city pairs that are "accidentally" connected when twodifferent parts of the HSR network are connected. Consistent with the monitoring hypothesis,we observe the strongest effect for controlling stakes in large investments.