The Role of Economic Development Zones in National Development Strategies

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.