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Blessing or burden? The economic consequences of government proximity for firms: Evidence from government relocation in China

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  • Sun, Cong
  • Yang, Chao
  • Sun, Mingchen
  • Du, Jiangze

Abstract

This paper examines the impact of local government relocation on firm productivity in China. Using data from the Chinese Annual Survey of Industrial Firms (ASIF) for the period 1998–2007, we find that proximity to relocated governments significantly increases firms' total factor productivity (TFP), with stronger effects for firms closer to the new administrative centers. Mechanism analysis identifies several channels, including higher labor productivity, stricter environmental regulations, agglomeration effects and the government “helping hand”. These findings contribute to the literature on spatial political economy and suggest that administrative relocation can serve as an effective policy tool for regional industrial development in China.

Suggested Citation

  • Sun, Cong & Yang, Chao & Sun, Mingchen & Du, Jiangze, 2025. "Blessing or burden? The economic consequences of government proximity for firms: Evidence from government relocation in China," Pacific-Basin Finance Journal, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:pacfin:v:94:y:2025:i:c:s0927538x25003154
    DOI: 10.1016/j.pacfin.2025.102978
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    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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