Abstract
The Government of India initiated a program in 1994 to promote manufacturing in districts designated as backward. The way the backward districts were identified enables us to employ a regression discontinuity design to evaluate the impacts of the program. We find that the program’s 5-year tax exemption to manufacturers led to a significant increase in firm entry and employment in relatively better-off backward districts, particularly in light manufacturing industries. However, the program also resulted in negative spillover effects in districts which were neighboring these backward districts and relatively weaker in economic activity. The findings emphasize that the spatial effects of place-based policies deserve greater attention from policy makers.
Highlights
Place-based policies aimed at enhancing economic performance of certain areas within a country or region have been popular in both developed and developing countries
Examples of large-scale, placebased policies include the federal Empowerment Zone Program in the United States established in 1993, various initiatives of the European Union supported under its structural funds targeted at disadvantaged areas and countries within the European Union, and the special economic zones of the People’s Republic of China (PRC) that were started in the late 1970s, to name a few
The policy studied in this paper is a typical preferential tax program the Government of India adopted in 1994 that targeted 123 backward districts in the country’s 14 major states
Summary
Place-based policies aimed at enhancing economic performance of certain areas within a country or region have been popular in both developed and developing countries. When we expand the estimation samples from those near the cutoff to all districts, the point estimates are weakened or change signs, implying that the above positive effects were concentrated in the treated districts with relatively higher gradation scores This suggests that preferential tax treatment alone is unlikely to be a sufficient condition for firm entry and employment. The results for the United States programs are mixed again We add to this literature by showing that the tax exemption policy has differential impacts depending on the characteristics of the receiving areas with positive effects on firm entry and employment growth concentrated in the relatively well-performing targeted areas. We evaluate the effects of the backward district program undertaken by the Government of India since October 1994 using the 1998 Economic Census to generate information on the number of firms and employment at the two-digit industry level and across districts. The break is evident for the light and heavy manufacturing industries, i.e., the industries eligible for the program and less so for all other industries
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
