Government interventions in industrial development and regional development: the role of endowment structure

Abstract How do regional comparative advantages influence the long‐term effects of government interventions? This paper explores this question using disaggregated data on factor endowments and industrial construction in China under the centrally planned economic system during 1953–1978. These investment decisions, primarily driven by political considerations, led to significant variations in the congruence between the factor intensity of policy‐targeted industries and local endowment structure. Our findings show that while government interventions can have positive and lasting impacts on the size and efficiency of local industries, misalignments between the production technology of targeted industries and the factor endowment structure significantly weaken these effects.