Abstract
China's government has spent hundreds of billions of dollars to invest in new industrial parks with the intent of boosting the productivity of new firms attracted to the parks and to generate spillovers for the local economy in order to accelerate economic growth. Do such place based investments in capital raise urban productivity or is this another case of the powerful state misallocating capital in China (see Hsieh and Klenow 2009)? We measure the localized spillover effects of 110 parks built in eight major cities on firm productivity, wages, and local manufacturing employment growth. We find that the geographic spillover effect of parks is an increasing function of the park's overall human capital level, the FDI share, and its synergy with nearby incumbent firms (measured by Marshallian factors). Using geo-coded data, we document that the growth in local empolyment and wages stimulates nearby local housing construction and retail store openings. The rise of a new production sub-center causes the emergence of a suburban consumer city.
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