The Economic Impact of Special Economic Zones: Evidence from Chinese Municipalities

How large are the bene…ts of Special Economic Zones and what are the channels of these bene…ts? To shed some light on these questions, I collect a unique dataset of Chinese municipality economic statistics from 1978 to 2007 and use it to evaluate the impact of a Special Economic Zone experiment aimed at attracting foreign direct investment. Guided by three predictions from a theoretical model, I …nd the Special Economic Zone policy: 1) increases per capita foreign direct investment by 58%, mainly in the form of foreign-invested and export-oriented industrial enterprises; 2) does not crowd out domestic investment and domestically owned capital stock and 3) increases total factor productivity growth rate by 0.6 percentage points. The results suggest that creating Special Economic Zones not only brings capital, but also more advanced technology, and provide important policy implications for many developing countries.