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Very preliminary Comparative Advantage and the Effects of Place-Based Policies: Evidence from China’s Export Processing Zones Zhao Chen #, Sandra Poncet.

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Presentation on theme: "Very preliminary Comparative Advantage and the Effects of Place-Based Policies: Evidence from China’s Export Processing Zones Zhao Chen #, Sandra Poncet."— Presentation transcript:

1 very preliminary Comparative 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 2015-5-23

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 2015-5-23

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. 2015-5-23

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 : 2015-5-23 Establishment yearNumber of EPZs 200015 20013 20028 200313 200518 total57

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 2015-5-23

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 2015-5-23

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 2015-5-23

10 4. Empirical Results 2015-5-23

11 4. Empirical Results How to define comparative advantage (CA): – Q ci = 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 Q ci 2015-5-23

12 4.1 Basic model (1)(2)(3)(4)(5)(6) Full-sample Without CA With CA Full- sample Without CA With CA OLS FE T-0.0477-0.0106-0.0547 - 0.0594** *-0.0317-0.0640*** (0.0326)(0.0344)(0.0360)(0.0191)(0.0291)(0.0217) K-0.03320.00541-0.0414 (0.0337)(0.0364)(0.0394) T*K 0.0663**0.009030.0830***0.104***0.03670.123*** (0.0255)(0.0299)(0.0283)(0.0157)(0.0303)(0.0169) Constant-0.909***-1.388***-0.404-0.247-0.328*-0.229 (0.232)(0.143)(0.283)(0.243)(0.169)(0.313) Cluster-CityYES Obs338,21197,966240,245338,21197,966240,245 R-squared0.912 0.9130.9190.9160.921 Number of panelid 75,19722,46452,733 2015-5-23

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

14 4.2 long-run effects: full sample 2015-5-23

15 4.2 long-run effects: sub-sample w/o CA 2015-5-23

16 4.2 long-run effects: sub-sample with CA 2015-5-23

17 5. Robustness checks 2015-5-23

18 5.1 Using interaction terms （ FE ） T-0.0185 (0.0325) T*K 0.0451 (0.0319) T*Q -0.0549* (0.0330) T*K*Q 0.0811** (0.0333) Constant-0.241 (0.240) Cluster-cityYES Observations338,211 R-squared0.919 Number of panelid75,197 2015-5-23

19 5.2 Considering firm’s relocation 2015-5-23 (1)(2)(3) full-sampleWithout CAWith CA T-0.0481**-0.0192-0.0539** (0.0194)(0.0282)(0.0225) T*K0.108***0.03760.128*** (0.0159)(0.0287)(0.0172) Constant-0.265-0.356**-0.253 (0.217)(0.162)(0.276) Cluster-CityYES Observations277,61079,517198,093 R-squared0.9190.9160.921 Number of panelid56,09016,55539,535

20 5.3 Omitted governance abilities （ FE ） (1)(2)(3) Full-sampleWithout CAWith CA T-0.0169-0.0115-0.0149 (0.0347)(0.0441)(0.0378) T*K 0.0873***0.003930.108*** (0.0281)(0.0434)(0.0311) Constant-0.0469-0.144-0.0499 (0.269)(0.147)(0.364) Cluster-CityYES Observations158,34045,687112,653 R-squared0.9200.9180.921 Number of panelid34,56910,23324,336 2015-5-23

21 5.4 Higher export intensity firms （ FE ） Prologis （ 2008 ） (1)(2)(3) Full-sampleWithout CAWith CA T-0.0524**-0.00726-0.0652** (0.0256)(0.0354)(0.0266) T*K 0.110***0.03460.130*** (0.0215)(0.0457)(0.0231) Constant-0.539-0.570**-0.546 (0.436)(0.225)(0.554) Cluster-CityYES Observations166,80947,361119,448 R-squared0.9300.9320.930 Number of panelid38,76611,51227,254 2015-5-23

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 2015-5-23

23 Thank You ！ 2015-5-23

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