Do National Industrial Relocation Demonstration Zones Have Higher Total Factor Productivity

Abstract

In response to the changes in the economic environment at home and abroad, several National Industrial Relocation Demonstration Zones（NIRDZs）have been set up in China’s central and western areas since 2010. How does the establishment of NIRDZs affect total factor productivity（TFP）? The answer to this question is of great practical significance to further optimize the development of NIRDZs, change the pattern of economic growth, and promote regional coordinated development. The TFP of 285 cities at prefecture level is measured by using the Solow Residual method, and the average TFP of these areas shows a downward trend within the observation interval. The three demonstration areas with the highest TFP in 2015 are the Guang’an NIRDZ in Sichuan Province, the Xiangnan NIRDZ in Hunan Province and the Wanjiang NIRDZ in Anhui Province, showing that the quality of economic development in these areas is relatively higher. The three demonstration areas with the lowest TFP are the Yinchuan-Shizuishan NIRDZ in Ningxia Autonomous Region, the Yellow River golden triangle NIRDZ and the Gansu Lanbai NIRDZ, which reflects that these areas have relatively lower input-output efficiency. A difference-in-differences（DID）approach is used to analyze the policy treatment effect of NIRDZs on regional TFP. The results show that the policy treatment effect on regional TFP in the observation period is negative, indicating that the establishment of NIRDZs for undertaking industrial relocation in central and western areas does not improve regional TFP, more than that, the regional TFP of NIRDZs decreases significantly. There exist obvious regional differences in the policy treatment effect. The effect of the central region is not significant, while that of the western region is significantly negative. The empirical analysis shows that the significant increase of the fixed asset investment after the establishment of NIRDZs is the main cause for the decrease of TFP. The effect of industrial upgrading is not obvious, and the impact of undertaking polluting industry relocation on TFP has regional differences. Therefore, in order to promote high-quality development in the central and western areas, these regions need to further improve investment efficiency in the process of undertaking industrial relocation, thoroughly implement the concept of green development, and prevent the relocation of backward production capacity and polluting industries. At the same time, they should establish a coordination mechanism for inter-regional industrial relocation and a service mechanism for connecting major projects, promote cluster industrial relocation, strengthen innovation-driven development, and accelerate technological progress, so as to enhance the endogenous growth capacity of these areas.