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The Spillover effect of export processing zones

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  • Wu, Weixiao
  • Hong, Chang
  • Muhammad, Andrew

Abstract

China has established many Export Processing Zones (EPZs) to support exports in a few industries with the support of local government. These industries can be defined as the pillar industries of an EPZ. We use a difference-in-difference approach to study the spillover effect of an EPZ on the adjacent firms outside the zone, using a sample of 42 Chinese cities with their first EPZs being founded during 2000–2005. We find that EPZs improve the performance of surrounding firms near the zone, with the impact being larger for firms in the pillar industries that the EPZs particularly favor. We also find that the magnitude of spillovers depends on the distance between a firm and the nearest EPZ: pillar-industry firms can receive higher premium by locating close to an EPZ, and this impact is the opposite for non-pillar industry firms. We examine the potential heterogeneous effects and find that the spillover effects are bigger for larger EPZs and EPZs designed to promote high-tech industries. We also find that domestic firms benefit more from the EPZ policy compared to their foreign counterparts.

Suggested Citation

  • Wu, Weixiao & Hong, Chang & Muhammad, Andrew, 2020. "The Spillover effect of export processing zones," China Economic Review, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:chieco:v:63:y:2020:i:c:s1043951x20300754
    DOI: 10.1016/j.chieco.2020.101478
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    More about this item

    Keywords

    Export processing zone (EPZ); Spillover effect; Difference-in-differences;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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