Jeffrey Zax (p)

Eva Dettmann

Regional inequality in China is of substantial interest. However, most of that interest is directed at comparisons of average income measures across provinces which do not reveal regional differences in individual welfare.

This paper estimates these differences. It measures the extent to which earnings depend upon the province of residence for urban Chinese workers with legal urban residence. It is based on province-specific regressions of observed labor earnings on worker characteristics. They predict earnings in every province for all workers. They identify the province in which each worker would maximize predicted labor earnings.

The difference between predicted earnings in this province and in the province of resi-dence indicates the earnings gains that may be available through economic mobility. Between 40% and 75% of non-migrant Chinese urban workers predict relocation gains of more than 50%. Average gains are equivalent to those associated with at least seven additional years of schooling. This indicates that there is substantial inequality in opportunity across provinces.

The same analysis applied to the urban U.S. at a comparable state of development demonstrates that 92.6% of American urban workers predict relocation gains of less than 20%. In contrast to China, almost all of them were, roughly, in spatial equilibrium.

China’s hukou restrictions interfere with inter-provincial labor market equilibration. Workers have increasingly ignored these restrictions. However, illegal migrants have complemented legal urban workers. Consequently, migration has probably exacerbated spatial earnings disequilibria. Equilibration may also have been impeded by barriers to mobility of final goods or to the diffusion of non-labor factors of production and of the most productive technologies.

The partial equilibrium calculations here cannot account for all that would ensue were these barriers to disappear. Nevertheless, the large estimates of income losses are of similar magnitude to general equilibrium estimates of productivity losses attributable to firm-level distortions, welfare losses attributable to internal trade restrictions, and welfare losses attributable to interference with agglomeration economies. This raises the possibility that all of these results reflect, at least in part, a common set of geographic distortions at the core of the Chinese economy.

Gianluca Monturano (p), Giuliano Resce, Marco Ventura

Jeffrey Zax

This paper investigates the effects on the economic activities location of a specific governmental place-based policy, the Italian Strategy for Inner Areas (SNAI). Taking advantage of the most recent developments in the econometrics of policy evaluation, we apply a staggered difference-in-difference estimator to evaluate the impact of the public policy in terms of number of plants at municipal level. The analysis is made possible thanks to a detailed panel dataset containing information about Italian municipalities over the years 2014-2020. The results show that the policy has produced effects since
its inception generating a significant number of extra plants in the treated municipalities over the first two years. A further key issue is whether the policy has generated spillover effects on neighbours which may either corroborate the encouraging result or invalidate
it. To answer this question we follow an empirical strategy, and we find positive spillover
effects.

Marco Di Cataldo (p), Riccardo Crescenzi, Mara Giua, Juan Alvarez Vilanova

Gianluca Monturano

The stagnation of Foreign Direct Investment (FDI) flows in Europe dates back to the Great Recession in the late 2000s. At the same time, the restructuring of key European industries has accelerated, with the consolidation of some key European value chains and the emergence of new vulnerabilities in others. This paper aims to analyse this process of industrial restructuring by shedding new light on the geography of expansions and divestments in the EU regions and investigating the role of regional policies. In particular, the paper looks at the role of national and regional Investment Promotion Agencies (IPAs) that have become an increasingly common policy tool not only for countries but also for regions. By leveraging an ad-hoc survey on the structure and strategy of national and regional IPAs in Europe, we explore the regional impacts of both national and regional IPAs on FDI expansion and retention in the EU. We test
whether the strategic targeting of key investment sectors from national and/or regional agencies contributes to the expansion and retention of foreign activities in the host regions, and examine the extent to which such investment has had a significant impact on the host economy. Our evidence suggests that both national and regional IPAs have a positive impact on investment and employment in targeted sectors, but with highly heterogenous effects depending on the radius of action of the IPA, its proximity to the investors and their sector of activity.

Eva Dettmann (p), Antje Weyh, Mirko Titze

Marco Di Cataldo

This study estimates the establishment-level employment effects of investment grants in Germany. In addition to the average treatment effect on the treated, we analyse the influence of establishment’s characteristics and economic environment on the magnitude of the effect. We apply a modification of Heckman’s matching and difference-in-differences approach to consider time-varying treatment and different treatment durations. Our results suggest that investment grants positively impact employment. Moreover, we find strong evidence for effect heterogeneity regarding firms’ internal characteristics as well as the economic environment.