The chosen fortunate in the urbanization process in China? Evidence from a geographic regression discontinuity study

After decades of delayed urbanization, since 1998, China has implemented the “county‐to‐district” policy to promote urbanization and stimulate regional economic development. This policy was designed to expand the urban area of large cities by merging counties (rural areas) with nearby cities (urban areas). Intuitively, these regions are the “chosen fortunate” since they are the privileged beneficiaries of this policy experiment. However, at the time of writing (2018), recent studies have been inconsistent regarding this issue, and several studies have revealed that this policy has impeded regional growth. Therefore, the true effect of this policy must be carefully examined. Using grid‐level nighttime light data and a border‐based regression discontinuity design framework, we find that the average effect of the “county‐to‐district” policy on nighttime light growth is significant and positive, and this result also coincides with the increase of entry and decrease of exit of manufacturing enterprises, and the increase of the county‐level manufacturing employment. However, the policy effect on nighttime light turns to be negative in the long run, implying that short‐term economic growth may outweigh the long‐term economic growth potential. A further investigation of the underlying mechanism indicates that industrial enterprises in the experimental policy area do not perform better in terms of total factor productivity (TFP) and profit margin than their counterparts. Moreover, this policy aggravates the polarization between central and border areas.