Place-based policies, government intervention, and regional innovation: Evidence from China's Resource-Exhausted City program

Abstract

We assess the impact of a prominent place-based policy, namely the Resource-Exhausted City (REC) program, on regional innovation in China from 2003 to 2016. Exploiting the cross-city, cross-time variation in the timing of cities starting the REC program, we perform a difference-in-differences (DID) analysis and find that the program has a negative impact on regional innovation. This finding remains robust with various tests. One mechanism that may generate such impact is that the REC program increases the government intervention and thus affects regional innovation. Three channels support this mechanism, including the increase of zombie firms, the changes of government subsidy preference, and the land market distortion. Interestingly, the increase of the zombie state-owned enterprises (SOEs) and the government subsidy are more obvious in the non-resource-based SOEs than other firms, indicating the program increases the government's preference for the non-resource-based SOEs. Overall, the results provide evidence that government intervention is critical to regional innovation from the perspective of place-based policy. Our study provides a feasibility idea for further improving regional innovation and promoting high-quality development of resource-based cities in China. • The REC program shows a negative impact on regional innovation. • The program-induced government intervention can be the mechanism of the impact. • Zombie firms, government subsidy, and land market can be the channels. • The program induces the government's preference for non-resource-based SOEs. • Attach importance to the role of local government in regional innovation.