The Effect of Economic Reform and Industrial Policy in a Panel of Chinese Cities

We use the establishment of Special Economic Zones in China to estimate the effect of economic reforms on GDP. A panel of 270 Chinese cities from 1988 to 2010 allows us to exploit the variation in the establishment of zones across time and space. The results from our baseline difference-in-difference specification suggest that the establishment of a major zone led to an increase in the level of GDP by about 9%. This result is similar in a sub-sample of inland provinces, where the selection of cities in which zones were established was more transparent. We also use a set of alternative identification strategies and find mostly similar effects.