We study the effect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our difference-in-difference estimation 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 %. 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. The main channel is a positive effect on physical capital accumulation, although SEZ also have a positive effect on total factor productivity and human capital investments. We also investigate whether there are spillover effects of SEZ on neighboring regions or cities further away. We find positive and often significant spillover effects. AbstractWe study the e¤ect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our di¤erence-in-di¤erence estimation exploits the variation in the establishment of SEZ across time and space. We …nd that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20%. This …nding is con…rmed with alternative speci…cations and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. The main channel is a positive e¤ect on physical capital accumulation, although SEZ also have a positive e¤ect on total factor productivity and human capital investments. We also investigate whether there are spillover e¤ects of SEZ on neighboring regions or cities further away. We …nd positive and often signi…cant spillover e¤ects.JEL Codes. H72, L52, O25, O38, O53, P21, R11.

We study the effect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our difference-in-difference estimation 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 %. 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. The main channel is a positive effect on physical capital accumulation, although SEZ also have a positive effect on total factor productivity and human capital investments. We also investigate whether there are spillover effects of SEZ on neighboring regions or cities further away. We find positive and often significant spillover effects. AbstractWe study the e¤ect of place-based industrial policy on economic development, focusing on the establishment of Special Economic Zones (SEZ) in China. We use data from a panel of Chinese (prefecture-level) cities from 1988 to 2010. Our di¤erence-in-di¤erence estimation exploits the variation in the establishment of SEZ across time and space. We …nd that the establishment of a state-level SEZ is associated with an increase in the level of GDP of about 20%. This …nding is con…rmed with alternative speci…cations and in a sub-sample of inland provinces, where the selection of cities to host the zones was based on administrative criteria. The main channel is a positive e¤ect on physical capital accumulation, although SEZ also have a positive e¤ect on total factor productivity and human capital investments. We also investigate whether there are spillover e¤ects of SEZ on neighboring regions or cities further away. We …nd positive and often signi…cant spillover e¤ects.JEL Codes. H72, L52, O25, O38, O53, P21, R11.

This paper uses a general equilibrium framework as in Eaton and Kortum (2002) to estimate the contribution of transport infrastructure to regional development. I apply the analysis to India, a country with a notoriously weak and congested transportation infrastructure. I first analyze the development effects of a recent Indian highway project that improved connections between the four largest economic centers. I estimate the effect of this new infrastructure on income across districts using satellite data on night lights. The results show aggregate gains from the Indian highway project, but unequal effects across regions. China has followed a different highway construction strategy and has experienced more significant convergence across regions than India. I therefore use the model to gauge the effects of a counterfactual highway network for India that replicates the Chinese strategy of connecting intermediate-sized cities. The results suggest that this counterfactual network would have benefited the lagging regions of India. I also construct additional counterfactuals and discuss their effects on economic development.