The Spillover Effects Of Place-Based Policies : Evidence from Development Zones in China

Evaluating the effectiveness of place-based policies has always been a hot topic in urban and regional economics. In this paper, we investigated the spillover effects of place-based policies from the perspective of micro-firm productivity, based on the special period of China’s development zones from sprawl to rectification. It is concluded that the development zones positively affect the productivity of enterprises within the zones, while it has significant negative spillover effects on enterprises outside the zones. This conclusion remained valid after a series of robustness tests and regression of instrumental variables. Considering the difference of administrative level of development zones, it is found that the negative spillover effects mainly come from the development zones at and below the provincial level, while the national development zones contribute positively to the productivity of enterprises outside the zones. After the clean-up of development zones in 2003, the negative spillover effects of development zones at and below the provincial level were alleviated temporarily. Geographically, the negative spillover effects of development zones in the eastern region are the largest，relatively small in the central region, and there is no obvious negative impacts in the west. Further mechanism analysis points out that the development zones at and below the provincial level have caused the misallocation of resources, impaired the agglomeration of urban population, and thus damaged the productivity of enterprises outside the zones. It is implicated that place-based policies are not always effective, and implementing them in accordance with local conditions and high standards is the key to success. Contrarily, the blind promotion of policies will not only cause a waste of resources, but also hinder the improvement of efficiency