Indian government initiated a program in 1994 to promote manufacturing in districts designated “backwards”. The way the backwards districts were identified enables us to employ a regression discontinuity design to evaluate the impacts of the program. We find that the program’s 5-year tax exemption to manufacturers led to a significant increase in firm entry and employment in relatively better-off backward districts, particularly in light manufacturing industries. However, the program also resulted in negative spillover effects on districts which were neighbouring these backward districts and relatively weaker in economic activity. The findings emphasise that the spatial effects of place-based policies deserve greater attention from policy makers.
Yi Jiang is a senior economist at the Economic Research and Regional Cooperation Department of the Asian Development Bank. His research focuses on topics in public, development, urban, and environmental economics. Yi holds a PhD degree in economics from the University of Maryland, College Park, a Master’s degree in statistics from the University of Missouri-Columbia, and a Bachelor’s degree in finance and economics from Zhejiang University, China.
Rana Hasan is the Director of the Development Economics and Indicators Division at the Asian Development Bank’s Economic Research and Regional Coordination Department. His research has focused on understanding how market-oriented economic reforms affect labour market outcomes and industrial performance, and analyses of poverty and inequality in the Asia-Pacific region. He holds a PhD in Economics from the University of Maryland and a Masters’ degree in Economics from the Delhi School of Economics, University of Delhi.