Industrialization from Scratch: The Persistent Effects of China's 'Third Front Movement'

Abstract

This paper studies the long-run impacts of industrial investment on the structural transformation of agrarian local economies. We exploit a massive industrialization campaign in China known as the "Third Front Movement," which invested heavily in the industrial sector in China's remote and largely agrarian areas (the Third Front Region) in the 1960s and 1970s. Exploiting the quasi-randomness in the geographic distribution of the Movement's investment, we find that local economies that received more investment continue to have larger and faster-growing modern sectors over two decades after the Movement ended. Urbanization is mainly accounted for by rural-to-urban transformation within the same local economy, rather than inter-regional migration. Therefore, the effects of the Movement are captured by the local residents. We find that the persistent effects are sustained by positive spillovers to a fast-growing non-state sector and explore several channels through which those spillovers take place. Finally, we discuss the welfare implications of the Movement at the national level.