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

Binkai Chen, Ming Lu, Christopher Timmins and Kuanhu Xiang

No 26148, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: O53 R1 R58 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-cna, nep-geo, nep-lab, nep-tra and nep-ure
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Citations: View citations in EconPapers (9)

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