Working Paper: CEPR ID: DP9748
Authors: Simon Alder; Lin Shao; Fabrizio Zilibotti
Abstract: We estimate the effect on economic development of China's industrial policy, in particular, the establishment of Special Economic Zones (SEZ). We use data from a panel of 276 Chinese cities and prefectures from 1988 to 2010. Our difference-in-difference estimator exploits the variation in the establishment of SEZ across time and space. We find that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20%, but not with a permanently steeper growth path. This finding is confirmed with alternative specifications and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. Decomposing the effect of SEZ on GDP into different channels shows that this worked mainly through the accumulation of physical capital, although there is some evidence of increasing productivity and human capital investments. Using light intensity as an alternative measure for economic activity confirms the positive effects of SEZ.
Keywords: China; Difference-in-difference; Economic growth; Economic reforms; Industrial policy; Investments; Satellite light; Special Economic Zones; Total factor productivity
JEL Codes: H72; L52; O25; O38; O53; P21; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Establishment of SEZs (O17) | Increase in GDP level (E20) |
| Establishment of SEZs (O17) | Accumulation of physical capital (E22) |
| Establishment of SEZs (O17) | Increase in productivity (O49) |
| Establishment of SEZs (O17) | Increase in human capital investments (J24) |
| Establishment of SEZs (O17) | Permanent increase in GDP level (E20) |
| Establishment of SEZs (O17) | Increase in GDP level over time (E20) |
| Establishment of SEZs (O17) | Positive effect on GDP per capita (O49) |
| Establishment of SEZs (O17) | Positive effect on capital-labor ratio (J24) |
| Establishment of SEZs (O17) | Positive effect on total factor productivity (TFP) (O49) |
| Establishment of SEZs (O17) | No negative spillovers to adjacent areas (R38) |