The Impact of Special Economic Zones on Total Factor Productivity of Chinese Provinces: A panel analysis of trends in growth from 1974 to 2011
Ziwei Judy Hao 14.33 Spring 2013 1st draft
I. Introduction: A Special Economic Zone (SEZ) is a geographical region that has economic laws more liberal than a country’s regular economic laws. As a trade capacity development tool, SEZs promote rapid economic growth by using tax and business incentives to attract foreign investment and technology. By offering privileged terms, SEZs attract investment and foreign exchange, spur employment and boost the ...view middle of the document...
Many previous papers, such as the one by Wong (1987) , focuses on quantifying the movement of foreign direct investment (FDI) flowing into well known SEZ cities over the years. A few recent papers have looked into effect of SEZ status on economic productivity, particularly that of Wang (2010), which concluded that SEZ status increases total productivity factor (TFP) for a group of experimental SEZ towns. Following that paper, Xu and Chen (2011) uses invested capital values and productivity for each province from 1979 to 2005 to identifies spillover effects from SEZ induced FDI increases on neighboring cities. However, there is no concrete results on exploring productivity trends for each province before and after establishing an SEZ city.
Serving as a stepping stone towards this goal, this paper seeks to answer two major questions: (1) How large are the growth benefits of SEZs brought about to a provinces compared to the state of its productivity prior to the introduction of an SEZ? (2) How can numerically predict annual changes in productivity growth before, during and after when an SEZ is introduced to a province? While the goal for this knowledge faces difficulty in controlled research and data collection, the results will hopefully shed more light on macrolevel impact of SEZs on the domestic economy. To shed light on the proposed questions, I’ve collected a unique dataset of economic statistics from 1973 to 2011 for 30 provinces. My results show that: 1. (to be added) 2. (to be added) The remainder of the paper is organized as follows: Section II outlines the background for this research paper from literature on SEZ related experiements. Section III presents the methodology for data collection and econometric framework for the regression. Section IV reports results and data analysis. The final section concludes and summarizes the findings.
II. Background A. Literature Review on History of SEZs and FDI growth in first four SEZs By 1970s, China was still a developing country coming out of three decades of isolation and strict revolutionary regime. In dire need of change, leadership turned its head towards opening the country to global contacts and influences. Deng Xiaoping, the chief architect behind China’s economic reforms in 1978 proposed in the Open Door Policy to experiment with free international trade to boost investment, ideas, and development in China. The easiest solution was to establish cities with relaxed trade, labor, and entrance policies to attract foreign direct investment (FDI), expand China’s productivity, and accelerate the introduction of new technology. In July of 1979, the government decided that Guangdong and Fujian provinces should be the first to conduct economic exchanges with other countries and implementing “special policies and flexible measures.” By August of 1980, cities of Shenzhen, Zhuhai, and Shantou in the Guangdong Province...