Development Zones and Key Industries Resource Allocation Efficiency in China

ABSTRACT Development zone play a key role in improving resource allocation efficiency. However, development zone policy preference toward key industries causes resource reallocation both within and across industries. Using propensity score matching, staggered difference‐in‐difference, instrumental variable methods and Cox proportional risk model, this study explores the impact mechanism of development zone policies on key industries' resource allocation efficiency at the county and firm levels. The results show that (1) development zone policies positively affect key industries' resource allocation efficiency; the effect is strengthened when key industries correspond to local comparative advantages or are consistent with key industries of the central and local governments. (2) Development zone offer greater financial subsidies and tax incentives to efficient firms in key industries than in non‐key industries. Efficient firms in key industries can increase factor input, production, and output share. The strong competitive effect from the agglomeration forces inefficient firms' withdrawal and efficient firms' entry, thereby promoting overall resource allocation efficiency.