Industrialization from Scratch: The 'Third Front' and Local Economic Development in China’s Hinterland

69 Pages Posted: 21 Oct 2015 Last revised: 31 Jan 2018

See all articles by Jingting Fan

Jingting Fan

Pennsylvania State University, College of the Liberal Arts - Department of Economic

Ben Zou

Michigan State University - Department of Economics

Date Written: October 20, 2015

Abstract

Government subsidies to the manufacturing sector are popular in developing countries. This paper studies the long-run effects of a large-scale regional industrialization campaign in China, known as the “Third Front" (TF) construction. Motivated by national defense considerations, the TF established large manufacturing plants in China’s remote and under-developed hinter- land. Using variation from the site-selection criteria for these plants, we find that the TF has positive effects on local economic development. Two decades after the end of the TF, places that received more investment had a larger and more productive private manufacturing sector. Evidence suggests that local agglomeration forces play an important role. By reallocating resources to a less-productive region, the TF might decrease the aggregate efficiency. Using a simple model of structural transformation, we derive conditions under which the TF improves aggregate efficiency, and show empirically that these conditions are not met.

Keywords: Structural Transformation, Regional Economic Development, Local Spillovers

JEL Classification: O14, O18, R1

Suggested Citation

Fan, Jingting and Zou, Ben, Industrialization from Scratch: The 'Third Front' and Local Economic Development in China’s Hinterland (October 20, 2015). Available at SSRN: https://ssrn.com/abstract=2676645 or http://dx.doi.org/10.2139/ssrn.2676645

Jingting Fan

Pennsylvania State University, College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States

Ben Zou (Contact Author)

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

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