Do Place-Based Programs Affect Local Innovation and Entrepreneurship?

Abstract

This paper explores how a prominent place-based program in China, the establishment of national high-tech zones, affects local innovation and entrepreneurship. Relying on plausible exogenous variation in place-based programs caused by staggered establishments of national high-tech zones in 473 Chinese cities and using a difference-in-differences approach, we find that the establishment of national high-tech zones has a positive effect on local innovation output and entrepreneurial activities. A number of additional tests suggest that the effects appear to be causal and are unlikely driven by chance. Favorable tax treatments, talent cultivation, and land price reductions offered by national high-tech zones are three plausible underlying mechanisms through which high-tech zones promote local innovation and entrepreneurship. Our paper sheds new light on the real effect of China’s national high-tech zones and provides new evidence in the debate about the real effect of place-based programs.

Keywords: Innovation, Entrepreneurship, Place-based policy

JEL Classification: G30, L26, O31, R50