Do China’s Modern Agricultural Demonstration Zones work? Evidence from agricultural products processing companies

Abstract

ABSTRACT This paper examines the effect of place-based agricultural industry policy on firm-level development, focusing on the establishment of Modern Agricultural Demonstration Zones (MADZ) in China. Using a panel data of agricultural products processing companies from 2007 to 2013, we apply difference in difference (DID) method and find that the policy has significantly increased the employment, output and assets. The government’s selection of MADZ may not be random, leading to endogenous problems. We deal with this selection bias on site and strengthen our estimation results with a series of robustness tests. Based on the mechanism analysis, the effect of MADZ comes from tax deductions and agglomeration effects. In addition, we use the data of listed companies to verify the role of MADZ in promoting the total factor productivity (TFP) of agricultural companies.