Does place-based policy increase new firm births? Evidence from special economic zones in China

The special economic zone (SEZ) is an important place-based policy adopted by developing countries to stimulate regional growth. This study combines the rich data on SEZ with firm registration data to examine their impacts on new firm births. Through a set of difference-in-differences estimations at the county level, we find a variety of heterogeneous effects of SEZs on new firm births with respect to characteristics and geographical locations of zones and industry type of firms. Specifically, national-level zones significantly increase the birth of new service firms (value chain upgrading effect), while the introduction of provincial-level zones has a significant positive impact on the start-up activities in the manufacturing sector (industrialization promotion effect). Furthermore, the analysis confirms that the increased local market size and reduced travel and innovation costs explain the value chain upgrading effect of national-level zones in urban areas. And the decline in land prices emerges as a potential mechanism for the industrialization promotion effect of provincial-level zones in peripheral counties.