Paris School of Economics - École d'Économie de Paris

Economics serving society

(Note G-MonD n°19) Inter-industry relatedness as a key determinant of industrial-policy efficiency

Note n°19 - December 2017

Title: « Inter-industry relatedness as a key determinant of industrial-policy efficiency »
Authors: Zhao CHEN, Sandra PONCET and Ruixiang XIONG
Abstract :

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We study the efficiency of the export-promoting policies implemented in China within the so-called Export Processing Zones (EPZ) and investigate whether the effect depends on the consistency of their focus with local comparative advantage. In the early 2000s the Chinese government established 57 Export Processing Zones, a type of free trade zone (FTZ) offering tax incentives and a barrier-free environment, to encourage investments from multinational companies into processing trade activities. We use sector-level data from Chinese manufacturing surveys over the 1998-2007 period and exploit information on the targeted sectors in each zone and on the adequation between targeted sectoral activities and the local availability of capabilities and resources. We find export benefits from the EPZ policy which are greater for sectors with denser links with the local productive structure. Our results suggest that industrial-policy effectiveness is magnified by pre-existing productive knowledge.