Economic Effects of Macao’s Integration with Mainland China: A Causal Inference Study

Abstract

Macao was a Portuguese colony until 1999, when its sovereignty was transferred to China, initiating its integration process. This article attempts to estimate the consequences of this socio-economic process in terms of per capita gross domestic product (GDP). We build a panel data set spanning 1970 to 2012, with 25 countries, setting 2000 as the initial treatment year for the integration process. The analysis is carried out through two alternative methodologies: the synthetic control method and the panel data approach. The integration treatment had a significant, positive effect on Macao’s per capita GDP. As additional outcome variables, we also analyze the effects of integration on the per capita net inflow of foreign direct investment, the unemployment rate, and the per capita exports and imports of goods and services.