Using provincial-level data for 1982-1999, this study developed an analytical framework to estimate the effects of different types of roads on growth and poverty reduction in China. This study differs from the previous study by Fan, et al in two aspects: first by differentiating across different quality of roads, and second by expanding the effects of infrastructure investment on growth and poverty reduction in both rural and urban areas.

The results show that road development, together with agricultural R&D, irrigation, education, electricity, and telecommunications, all contributed to economic growth and poverty reduction. But variations in their marginal effects on growth and poverty reduction were large, among the different types of roads as well as across regions. The most significant finding of this study is the high returns from low quality roads, which are mostly rural roads. The marginal impact from lower quality road investments is more than 4 times greater than that of high quality roads. Even in terms of urban GDP, the return from low quality roads (or rural roads) was greater than that of high quality roads. While high quality roads do not have significant impact on agricultural GDP, low quality roads can generate more than 1.48 yuan worth of agricultural GDP for every yuan invested. Investment in low quality roads also generates high return in rural nonfarm GDP. Every yuan invested in low quality roads yields more than 5 yuan of rural nonfarm GDP.

In terms of urban poverty reduction, the impact from low quality roads is larger than the corresponding impact from high quality roads. Likewise, the effects of low quality roads on rural poverty reduction are larger than those from high quality roads.