The Role of Economic Development Zones in National Development Strategies

The Case of China

by Xiao Wang

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Abstract

Economic development zones (EDZs) are employed by many countries as policy instruments to foster economic growth and technological innovation and increase exports and employment. Since the 1980s, the Chinese government has established more than 10 types of EDZs; each type employs a combination of preferential policies set by the central government and zone specific policies tailored to attract businesses and investors.

This dissertation finds that EDZs have generated a substantial share of China's industrial output, value added, exports and attracted large share of foreign direct investment (FDI). Increases in these outputs from EDZs have contributed substantially to China's economic growth. Based on a systematic review of the historical data and policies for EDZs in China, this study creates a unique classification system for the development path of these zones and identified four distinct phases.

The dissertation also employs data from over 50 ETDZs and their host cities and a difference-in-differences (DID) model to analyze the impact on foreign direct investment in the zones of China's 2008 change in corporate income tax law. It finds that after the 2008 tax reform 10-14 percent less FDI flowed into the zones relative to the other areas in their host cities. The results differ to some extent across zones.

Using a case study approach, this dissertation finds that EDZs have been able to partially offset the effects of the 2008 change in tax policy. Guangzhou Development District (GDD) has adopted policies providing financial incentives, to foster S&T, and to attract talent to mitigate the effects of the national policy change ending favorable tax treatment for companies located in zones. Many of these policies were successful (e.g. the number of expatriate experts attracted), but GDD still faces competition from other zones.

These findings provide policy makers with lessons learned from China and ways to use zones as a successful tool to accelerate growth in economic output and exports. As the zones mature, governments may wish to scale back the preferential policies provided by these zones. The dissertation concludes with policy recommendations that the zone management may consider to sustain growth besides the incentive packages they offer.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Overview of Economic Development Zones

  • Chapter Three

    Introduction to China's Economic Development Zones

  • Chapter Four

    Phase One: Establishment and Exploration (1980-1991)

  • Chapter Five

    Phase Two: Steady Development and Growth of EDZs (1992-1999)

  • Chapter Six

    Phase Three: Expansion to Central and Western China (2000-2007)

  • Chapter Seven

    Phase Four: Rescinding Preferential Policies and the Current Role of EDZs in China's Economic Growth Model (2008-Present)

  • Chapter Eight

    Summary of Roles of EDZs in China's Economic Development

  • Chapter Nine

    Impact of the 2008 Tax Law on ETDZs — A DID Model Approach

  • Chapter Ten

    Guangzhou Development District (GDD) Case Study

  • Chapter Eleven

    Conclusion

This document was submitted as a dissertation in September 2013 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Keith Crane (Chair), Shanthi Nataraj, and Qin Xiangdong.

This report is part of the RAND Corporation dissertation series. PRGS dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a PRGS faculty committee overseeing each dissertation.

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