Place-based Policy, Firm Behavior And Economic Growth:Firm-level Evidence From China

Since reform and opening-up in 1978, China attains tremendous economic success, which has drawn the world’s attention. The experimentation of place-based policies is introduced to tackle the problems among different regions, taking the form of "development zones". Meanwhile, local governments join in the competition for better resources and policy preference. Against the general background, the present paper addresses the following questions:(1) What influence could placed-based policies have on the development of firms and regions? (2) How the spillover effect varies among different policy orientations? (3) What issues should be taken into consideration in making placed-based policies?To answer the above questions, we introduced the relationship between place-based policies and corresponding firms into the framework, and proposed a firm-oriented angel, namely "policy implement - firm reaction-economic effect" to analyze the heterogeneity and effectiveness of the policies and identify how they influence the choice of firms location, industry aggregation and the path and mechanism of economic development.After 30 years of development, it is under question whether the development zones are the leading areas of regional economic development, or an enclave confined within their own, or just failures without viability. The present paper conducted an empirical analysis of spillover effect of the influences from development zones above provincial level in China on total factor productivity (TFP) from 1998 to 2007, through building over 1,000 data sets that reflect the spatial relationship between industrial firms and development zones. It is found that:(1) By spillover effect, the development zones significantly increase the TFP of peripheral firms and the effect is distance and density sensitive; (2) The spillover effect in the national development zones decreases rapidly due to lack of respondents, whereas the spillover effect in the provincial zones decrease slowly for the close connection with peripheral firms; (3) In 2003, the clean-up of development zones has changed the excessive and overcrowded situation in China, which strengthens their spillover effect on peripheral firms; (4) "Paddocking " policy of export processing zones only hinders spillover effect and the paradox of import-export productivity lies in the allowance which offsets actual cost;In addition, we extended the analysis to ports and tested their spillover and reform effect. It is found that:(1) The spillover of harbour hinderland also decays with distance, and levels vary in different river systems; (2) After 2001, when powers were delegated to local governments, who were highly motivated in place-based policies, the development and radiation in hinderlands were strengthened.It should not be denied that placed-based policies promote local economy through spillover. However, we should also notice that policy difference brings policy competition, that is, uncovered areas would strive for resources at all cost, even by increasing debt. To avoid fake aggregation for "policy rents", we suggest that placed-based policies relate with dominant industries and markets. Furthermore, we need to break allowance-drive pattern and encourage growth by technique and service trade.