Redrawing the Industrial Map in China: a Spatial Political Economy Perspective
Abs
Chinese provinces’ industrial structures have become increasingly similar. This paper develops a quantitative spatial political-economy model to recover provincial industrial priorities from observed subsidies, accounting for trade, production networks, and national external economies of scale. Recovered priorities become more similar across inland and coastal provinces and align with national and provincial development plans. Removing recovered sectoral priorities reduces national welfare, yet optimally designed priorities would raise welfare by 1.12 percent in 2012 while holding each province’s budget fixed. These findings show that increasing industrial similarity under local sectoral priorities is consistent with national scale spillovers, while redesigning those priorities can further improve welfare within existing fiscal resources.