CAN A NEW INFRASTRUCTURE PLAN REALLY PROMOTE THE DUAL CIRCULATION STRATEGY IN CHINA?

Abstract

This study aims to provide an answer to the question: “Can a new infrastructure plan promote the Dual Circulation Strategy in China?” Using provincial-level panel data for 31 provinces from 2005 to 2020, this study estimates a five-variant panel vector autoregressive model for the national level, eastern region, central region and western region, respectively, and conducts panel Granger-causality tests and impulse response analysis. The primary finding of this study is that there is a bi-directional Granger-causal relationship between the growth rate of new infrastructure investment and each of two variables representing internal circulation and each of two variables representing external circulation at the national level. According to the impulse response analysis, all variables representing either internal or external circulation have a positive impulse response to an increase in the growth rate of new infrastructure investment, except for trade openness. This study thus confirms that the new infrastructure investment can promote the Dual Circulation Strategy that has been a new guide for China as it moves toward a high-quality economic development stage.