Economic Reforms and Industrial Policy in a Panel of Chinese Cities

52 Pages Posted: 20 Dec 2013

See all articles by Simon Alder

Simon Alder

University of North Carolina (UNC) at Chapel Hill - Department of Economics

Lin Shao

Washington University in St. Louis

Fabrizio Zilibotti

Yale University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2013

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.

Keywords: China, Economic Growth, Economic Reforms, Difference-in-difference, Industrial Policy, Investments, Satellite Light, Total Factor Productivity, Special Economic Zones

JEL Classification: H72, L52, O25, O38, O53, P21, R11

Suggested Citation

Alder, Simon and Shao, Lin and Zilibotti, Fabrizio, Economic Reforms and Industrial Policy in a Panel of Chinese Cities (November 2013). Available at SSRN: https://ssrn.com/abstract=2369416 or http://dx.doi.org/10.2139/ssrn.2369416

Simon Alder (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

Lin Shao

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Fabrizio Zilibotti

Yale University ( email )

New Haven, CT 06520
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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