The unintended consequences of special economic zones on crime

Abstract Can pro-growth place-based policies cause social instability? This paper uses a unique hand-collected dataset on legal cases and special economic zones (SEZs) in China to examine the impact of pro-growth place-based policies on local crime in a developing country context. Exploiting the establishment of SEZs as a quasi-natural experiment, we document that SEZs increase the local crime rate by 27.9 per cent. We further show that SEZs significantly impact potential determinants of crime, including labor market conditions, public goods investment, and migration. Leveraging a novel decomposition framework, we emphasize the dominating role of migration in contributing to SEZs’ effect on rising crime. Auxiliary evidence suggests that crime is likely driven by social conflicts faced by migrants. The results highlight previously overlooked unintended social consequences of place-based programs in developing countries.