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Title: Economic Reforms and Industrial Policy in a Panel of Chinese Cities

Author(s): Simon Alder, Lin Shao and Fabrizio Zilibotti

Publication Date: November 2013

Keyword(s): China, difference-in-difference, economic growth, economic reforms, industrial policy, investments, satellite light, special economic zones and total factor productivity

Programme Area(s): Development Economics

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.

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Bibliographic Reference

Alder, S, Shao, L and Zilibotti, F. 2013. 'Economic Reforms and Industrial Policy in a Panel of Chinese Cities'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9748