NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Kuanhu Xiang

Shanghai University
Room 510, School of Economics
99 Shangda Road
Shanghai
China

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Shanghai University

NBER Working Papers and Publications

August 2019Spatial Misallocation: Evaluating Place-Based Policies Using a Natural Experiment in China
with Binkai Chen, Ming Lu, Christopher Timmins: w26148
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.
 
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