Do border effects alter regional development: evidence from a quasi-natural experiment in China

Abstract

Abstract Market access/potential is main explanations for spatial variation in economic activity. Past research has used quasi-natural experiments such as the imposition and removal of the Iron Curtain to assess how changes in market access influence economic outcomes. Rather, we focus on key quantity effects of market access by tracking population changes induced by the creation of a subnational border. We exploit a quasi-natural experiment in China and use a difference-in-difference identification strategy to estimate the effects of introducing a new border when Sichuan province was split into Chongqing and Sichuan in 1997. We find that the new border had negative population effects on Sichuan counties located near the new border. Further investigation finds that such border effects are unique to the new border region and are not related to other factors such as being more rural. We also provide additional evidence to exclude alternative explanations including differences in industry composition or access to transportation.