Essays on place-based development policies
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This thesis investigates the impact of Special Economic Zones (SEZs), a prominent place-based development policy in India. The first chapter studies the impact of SEZs on general economic activity as proxied by satellite lights data. Using newly assembled data on geocoded SEZ-level information and a thirteen-year panel data of 100,000 one-square-kilometer cells, it establishes that SEZs cause a significant increase in local economic activity up to a distance of 5 kilometers from the zones. The net effect is positive up to 20 kilometers from the zones, comparable in size to Indian districts. The second chapter analyzes the forces behind the increase in economic activity recorded in Chapter 1. Using nationally representative data on informal and formal sector firms and comparing current and future districts of SEZ operation in a difference-in-differences framework, the analysis produces evidence of a structural transformation in the local economy. While firms in the formal sector gain in size and productivity, SEZs crowd out economic activity from the informal sector evidenced by substantial decreases in informal sector employment, production and productivity. These trends are accompanied by non-uniform wage effects on workers in the local economy with only the higher end of the income and education distributions gaining significantly. The third chapter sheds more light on the mechanism that drives the opposite effects produced by SEZs on the two sectors of the Indian economy. Using measures of product quality and an index for the relative importance of industries in the supply chain, it finds that SEZs exert an increase in the demand for quality inputs from the local economy. This differentially hurts informal industries that are input suppliers. Secondly, evidence from a unique data-set on firm registrations in the state of Tamil Nadu suggests that increased formalization in the local economy is not brought about by an increase in informal firms registering into the formal sector. It is rather driven by a reduction in their registration rate and shutting down. Given that this sector is a major employer, this result raises concerns about inclusiveness in the growth produced by such a large-scale place-based policy.