Investment Promotion for DevelopmentZones in China: Underlying Rationaleand Policy Options

Chen Qiangyuan1, Zhao Haoyun2, and Ye Yang*2

1 National Academy of Development and Strategy, Renmin University of China, Beijing, China

2 Business School, Central South University, Changsha, China

Abstract: Development zones (DZs) have emerged as a significant policy initiative forpromoting regional coordination and facilitating resources allocation. They serve as anorganizational framework for fostering industrial agglomeration and driving high-qualitydevelopment. DZs attract and accommodate resource factors, firms, and projects, therebyfunctioning as a central catalyst for economic growth. This study utilizes data collected atthe “DZ, City and Countrycountry” levels through manual compilation, textual analysis,and innovation measurement. It aims to empirically examine the theoretical rationale andpractical preferences for promoting business and investment in China’s DZs. This studyconsiders several factors such as industry attribute, firm attribute, agglomeration theory,and industrial chain layout. Based on our research findings, DZs exhibit distinct preferences.First, industry attribute: DZs align with both national and regional strategic planning andadhere to the industrial endowments of the respective areas. Second, firm attribute: DZsprioritize attracting firms that are productive and innovative, and have an internationalpresence, rather than those that primarily contribute to taxes and job creation. Third,DZs are guided by the agglomeration theory, which suggests that they prefer firms thatgenerate strong agglomeration externalities. Lastly, DZs also consider the industrial chainlayout, aiming to attract firms that not only align with their existing industrial strengthsbut also extend to the upstream and downstream supply chain links. These conclusions aresubstantiated by the performance of robustness test. The success of DZs in China can beattributed to the five key principles: Adherence to national and regional strategic planning,prioritizing the actual industrial foundation, incorporating the theory of agglomerationexternalities, strengthening corporate competitiveness, and expanding industrial chains.

Keywords: Investment promotion by development zones, basic rationale, policy options,

JEL Classification Code: R11, E65, R23, R32, R58

DOI: 10.19602/j.chinaeconomist.2023.09.06