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Spatial Misallocation: Evaluating Place-Based Policies Using a Natural Experiment in China

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  • Binkai Chen
  • Ming Lu
  • Christopher Timmins
  • Kuanhu Xiang

Abstract

Using the mass closure of development zones in 2004 as a natural experiment, we examine the causal effect of development zones on firm level TFP in China. The difference-in-difference estimator shows that on average, loss of development zone policies results in 6.5% loss of firms’ TFP. Locational heterogeneity is important. Within 500 kilometers from the three major seaports in China, closure of zones reduced firm-level TFP by 9.62%, whereas closure of zones farther away did not show significant effects. Market potential and local within-industry spillover effects can explain much of this locational heterogeneity. We conclude that China’s strategy of using development zones as a place-based policy to encourage inland development may have led to spatial misallocation.

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  • Binkai Chen & Ming Lu & Christopher Timmins & Kuanhu Xiang, 2019. "Spatial Misallocation: Evaluating Place-Based Policies Using a Natural Experiment in China," NBER Working Papers 26148, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26148
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    2. Xie, Zhong & Lu, Wenling & Yu, Jing & Wu, Yanrui & Liu, Qing, 2022. "Development zones and green innovation: Evidence from Chinese listed companies," China Economic Review, Elsevier, vol. 76(C).
    3. Ji, Mianmian & Lv, Wendai, 2022. "Demonstration zones reform and corporate philanthropy: Evidence from China," Economic Modelling, Elsevier, vol. 115(C).
    4. Min Fang & Libin Han & Zibin Huang & Ming Lu & Li Zhang, 2022. "Place-based Land Policy and Spatial Misallocation: Theory and Evidence from China," Working Papers 002002, University of Florida, Department of Economics.
    5. Wu, Weixiao & Hong, Chang & Muhammad, Andrew, 2020. "The Spillover effect of export processing zones," China Economic Review, Elsevier, vol. 63(C).
    6. Xuan Tian & Jiajie Xu, 2022. "Do Place-Based Policies Promote Local Innovation and Entrepreneurship? [A model of growth through creative destruction]," Review of Finance, European Finance Association, vol. 26(3), pages 595-635.
    7. Zheng, Liang, 2021. "Job creation or job relocation? Identifying the impact of China's special economic zones on local employment and industrial agglomeration," China Economic Review, Elsevier, vol. 69(C).
    8. Hu, Wanqi & Huang, Wangen & Wu, Jianxin & Zhang, Chaokai, 2024. "Place-based policies and local human capital accumulation: Evidence from China's special economic zone program," China Economic Review, Elsevier, vol. 85(C).
    9. Quan Sun & Lexin Zhao, 2023. "The Impact of Rural Enterprise Park Policy on the Income of Rural Residents: Evidence from China," Sustainability, MDPI, vol. 15(11), pages 1-15, June.

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    JEL classification:

    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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