Do political connections help or hinder urban economic growth? Evidence from 1,400 industrial parks in China

Over a period of more than three decades, the Chinese government has created more than 1,400 new industrial parks, which have played a key role in creating manufacturing jobs and in attracting foreign direct investment, both nationally and locally. Provincial leaders who choose the location of such parks have political career incentives to select sites that increase regional economic growth, but also to select sites that reward city officials with whom they have connections. By exploiting plausibly exogenous changes in political connections, we document that city officials with connections to key provincial decision-makers are more likely to win parks. We estimate the heterogeneous urban growth effects of attracting such place-based investments. We find that industrial park sites chosen largely as a result of favorable political connections generate lower economic benefits than those chosen largely based on their economic fundamentals.