The Consumption Dividend of Regional Integration: Evidence from the Enlargement of Yangtze River Delta Urban Agglomeration, China

Applying the time-varying Difference-in-Differences (DID) method, this study explores the impact of the quasi-natural experiment of the two-wave enlargements of the Yangtze River Delta urban agglomeration from 2003 to 2017 in China. We find a positive empirical effect of the enlargement as measured by the increase in a city’s consumption. The enlargement creates an increase in consumption by 18.1% in cities within the cluster relative to their non-cluster counterparts. For entrants and incumbents, we find an increase in consumption by 18.7% and 14.6%, respectively. The effect of the enlargement has temporal and city heterogeneities: the entrants benefit prior to the incumbents; cities with better infrastructure, larger scale, and proximity to regional central cities experience greater benefits from the enlargement. Our findings reveal that the enlargement enhances consumption by reducing the three types of administrative border barriers— city, province, and cluster—thereby increasing consumption in cities located along these borders. This study highlights the crucial role of integration in stimulating consumption and provides recommendations for policymakers to unify the domestic market by reducing administrative barriers and encouraging autonomous local practices.