Place-Based Policies, Creation, and Agglomeration Economies: Evidence from China’s Economic Zone Program

Combining rich firm and administrative data, this paper examines the incidence and effectiveness of a prominent place-based policy in China: special economic zones. Establishing zones is found to have had a positive effect on capital investment, employment, output, productivity, and wages, and to have increased the number of firms in the designated areas. Net entry plays a larger role in generating those effects than incumbents. The special zone program’s net benefits over three years are estimated to amount to about US$15.62 billion. Capital-intensive industries benefit more than labor-intensive ones from the zone programs.