Government intervention, place-based policy and regional development: Evidence from China's Western Development

This paper explores the impacts of a generous central-planning policy on regional development -— China's Western Development Program. At the beginning of this century, 12 west provinces in China were targeted by the central government for considerable financial transfers and preferential industrial policies to promote their development. By taking advantage of the spatial discontinuities generated by the implementation of the program, I estimate the causal effects of the program on regional development. The nighttime light intensity rises slowly but steadily in the treated area, implying a 7 to 11 percent increase in overall development in 10 years, while the impact on social welfare indicators remains trivial. I test on the policy channels and find no evidence that the program has successfully compensated for the geographic disadvantage in the west and created human capital externalities.