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Zhao Chen # , Sandra Poncet * , Ruixiang Xiong #

very preliminary Comparative Advantage and the Effects of Place-Based Policies: Evidence from China’s Export Processing Zones.

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Zhao Chen # , Sandra Poncet * , Ruixiang Xiong #

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  1. very preliminaryComparative Advantage and the Effects of Place-Based Policies: Evidence from China’s Export Processing Zones Zhao Chen#, Sandra Poncet*, Ruixiang Xiong# #China Center of Economic Studies, Fudan University *Paris School of Economics (University of Paris 1) and CEPII

  2. I. Introduction • Industry policies, place-based policies and Economic Zones in China • No conclusive conclusions about the effectiveness of place-based policies (Moretti, 2010, Busso et al., 2013) • Difficulties in evaluation of industry policies (Krugman, 1983) • How to measure industry policy • How to identify the causality

  3. I. Introduction • In this paper • The effects of export-processing zones (EPZs) • Clear policy purpose • The role of comparative advantage • DID estimation using a quasi-experiment of EPZs in China.

  4. II. Brief literature review • The effect of industry policies (Cai, Harrison and Lin, 2011) • Tariff policy has positive impact on TFP of industries with comparative advantage • Comments: • Tariff policy & TFP • Comparative advantage: exporting firms • Policy of protection vs. policy of promotion

  5. II. Brief literature review • Policy evaluation of Economic Zones • City-level data (Wei, 1995; Wang, 2013; Alder et al., 2013) • Firm-level data (Head and Ries, 1996; Schminke and Van Biesebroeck, 2013) • Comments: • policy at city-level, no within city difference • Few concern about the heterogeneous impact • This paper: • Policy difference at city-industry level • Comparative advantage

  6. III. Background of China’s EPZs • Aim: promote exports by preferential policies • Establishment :

  7. III. Background of China’s EPZs • Only some industries chosen as key industries could enjoy preferential policies • Preferential policies • in EPZs：free VAT, free trade for imported components; facilitate firm’s exporting • outside： tax reimbursement when providing firms in EPZs with intermediate goods

  8. IV. Data • Data source • China annual survey of manufacturing firms from 1998 to 2007 • Sample • To make the cities more comparable, we only include the cities having EPZs by 2005

  9. 3. Data • Data cleaning • Basic cleaning (Brandt et al., 2012, Nie et al., 2012) • Industry classification adjustment (Yang et al., 2013) • Administrative division adjustment (Bao et al., 2013) • Price deflator • Exporting firms (1998-2007) • Matching key industries

  10. 4. Empirical Results

  11. 4. Empirical Results • How to define comparative advantage (CA): • Qci = 1, if location entropy for industry i in city c > 1 before EPZ establishment, otherwise 0 • Regression • Full sample • Subsample with CA • Subsample without CA • Triple-interaction term with Qci

  12. 4.1 Basic model

  13. 4.2 long-run effects Reference group: n = - 5 [-7, -6, -5] (n=-4) * Kci (n=-3) * Kci …… (n= 4) * Kci (n= 5) * Kci

  14. 4.2 long-run effects: full sample

  15. 4.2 long-run effects: sub-sample w/o CA

  16. 4.2 long-run effects: sub-sample with CA

  17. 5. Robustness checks

  18. 5.1 Using interaction terms（FE）

  19. 5.2 Considering firm’s relocation

  20. 5.3 Omitted governance abilities（FE）

  21. 5.4 Higher export intensity firms（FE）Prologis（2008）

  22. 6. Conclusions and implications • Conclusions • Average effects Overall: 10.4% Industries with CA：12.3%; otherwise no effects • Long-run effects Industries with CA：from 9.8% to 24.4% Otherwise no effects • Policy implication： • local initial conditions are important when making place-based policies

  23. Thank You！

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