The Dynamics of Economic Policy and Regional Specialization: Evidence from China's High-tech Industry

This paper investigates the effects of economic policy on regional specialization of China¡¯s high-tech industries for the period 1996 to 2005. Results indicate that the average level of regional specialization increases over years. Moreover, high-tech industry sector is highly localized in coastal regions. Using a dynamic panel data approach, we find that the implementation of high technology oriented export policy and subsidies for science and high technology activities encourage regional specialization, whereas local government¡¯s protections for local high-tech enterprises impede it. The empirical study also confirms the important role of high-skilled labor in determining regional specialization.