Working Paper: NBER ID: w26148
Authors: 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.
Keywords: development zones; total factor productivity; place-based policies; China; spatial misallocation
JEL Codes: O53; R1; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Development zone closures (R38) | Decrease in firm-level TFP (D21) |
| Development zone closures (R38) | Decrease in firm-level TFP for firms within 500 kilometers of seaports (R32) |
| Development zone closures (R38) | No significant TFP changes for firms further away from seaports (R32) |