From Government to Governance : Evidence from Border Adjustments in China

This paper studies how administrative border adjustments influence individual firm productivity and local economic development. Exploiting a novel quasi-natural experiment conducted since the 1990s in China, our empirical analysis finds that district border adjustments (DBAs) significantly enhance the TFP of manufacturing firms in the adjusted districts. Firms located in the border streets of the districts benefit the most. We investigate the mechanism and find that DBA improves firms’ productivity by enhancing agglomeration economies of industry clusters, reducing firms’ management costs and alleviating their financial constraints, which results in district-level industry specialization and more efficient capital allocation within the district. We also find that DBAs have a significantly positive effect on the overall economic development of border streets as measured by nightlights