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Economic reforms and industrial policy in a panel of Chinese cities

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  • Simon Alder
  • Lin Shao
  • Fabrizio Zilibotti

Abstract

The process of economic reforms launched in 1978, and gradually extended until current days, has catapulted China into a stellar growth trajectory that has proven highly resilient. In this paper, we estimate the effect on economic development of China’s industrial policy, in particular, the establishment of Special Economic Zones (SEZ), a salient economic reform. 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 Info

Paper provided by UBS International Center of Economics in Society - Department of Economics - University of Zurich in its series UBSCENTER - Working Papers with number 005.

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Date of creation: Nov 2013
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Handle: RePEc:zur:uceswp:005

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Keywords: China; economic growth; economic reforms; difference-in-difference; industrial policy; investments; satellite light; total factor productivity; Special Economic Zones;

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  1. Daron Acemoglu & Philippe Aghion & Fabrizio Zilibotti, 2006. "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, MIT Press, vol. 4(1), pages 37-74, 03.
  2. Shang-Jin Wei, 1993. "Open Door Policy and China's Rapid Growth: Evidence from City-level Data," NBER Working Papers 4602, National Bureau of Economic Research, Inc.
  3. Matias Busso & Jesse Gregory & Patrick M. Kline, 2010. "Assessing the Incidence and Efficiency of a Prominent Place Based Policy," NBER Working Papers 16096, National Bureau of Economic Research, Inc.
  4. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, December.
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Cited by:
  1. David Neumark & Helen Simpson, 2014. "Place-Based Policies," NBER Working Papers 20049, National Bureau of Economic Research, Inc.

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