Industrial policy and economic geography: evidence from China.

This paper investigates the trends and determinants of geographic concentration and industrial specialization in China, using provincial panel data for the period 1999–2010. It is shown that after 2005, both geographic concentration and industrial specialization began to decline, resulting in an increased similarity of industrial structure among provinces. This paper posits that the industrial policies of the provincial governments are the cause of this phenomenon. The result is robust when using instrumental variables to deal with possible reverse causality. The underlying mechanism is that the policy of the central government, which is set to steer the direction of industrial development for several years to come, is an important reference document for all provincial planners. It therefore causes the less developed regions to deviate from their comparative advantages and results in a combination of insufficient geographic concentration and inverse specialization in China. [ABSTRACT FROM PUBLISHER]