The impact of border reorganization within cities on misallocation: Empirical evidence from firm-level data

Abstract

The government of China merged or disintegrated several municipal districts on a large scale during 2000s. Employing a difference-in-difference approach and the benchmarking data envelopment analysis method, we show that border reorganization within cities significantly improves enterprise resource allocation efficiency. The primary mechanism is that modifying internal city boundaries enables geographically clustered enterprises to achieve agglomeration and specialization within administrative units and help mitigate market segmentation. This implies that borders within cities are important and enable use of border reorganizations as an effective tool in optimizing the quality of urban development.