Place-based policies and innovation: The contrasting roles of central and local special economic zones

This paper establishes the linkage between place-based policies and growth from the perspective of regional innovation, using China as a case study. Leveraging extensive data on special economic zones (SEZs) and patent data, I examine the causal effects and underlying channels of SEZ introduction on regional innovation outcome. Through a set of difference-in-differences estimations at the county level, the empirical findings demonstrate that central and local SEZs play contrasting roles in innovation. Specifically, the establishment of national-level zones significantly increases regional innovation outcome through the positive channels of improved transportation accessibility and increased start-up activities. However, the introduction of provincial-level zones has a negative impact on regional innovation outcome through the negative channel of the rising fiscal pressure of local government. Furthermore, the empirical results confirm that the SEZ effects vary with local development level and zone characteristics. These findings contribute significantly to the development of a context-tailored place-based policy toolbox. • The causal effects of special economic zones (SEZs) on innovation are investigated. • Central and local SEZs play contrasting roles in regional innovation outcome. • SEZ effects vary with local development level and zone characteristics. • National-level SEZ increases innovation through improved transportation accessibility and increased start-up activities. • Provincial-level SEZ has a negative impact on innovation through rising fiscal pressure of local government.