Industrial clusters in the long run: Evidence from Million-Rouble plants in China∗ Stephan Heblich Marlon Seror Hao Xu Yanos Zylberberg December 18, 2020 Abstract We identify the negative spillovers exerted by large, successful factories on other local production units in China. A short-lived cooperation program be- tween the U.S.S.R. and China led to the construction of 156 \Million-Rouble plants" in the 1950s. The identification exploits the ephemeral geopolitical context and exogenous variation in location decisions due to the relative po- sition of allied and enemy airbases. We find a rise-and-fall pattern in counties hosting a factory and show that (over-) specialization explains their long-run decline. The analysis of production linkages shows that a large cluster of non-innovative establishments enjoy technological rents along the production chain of Million-Rouble plants. This industrial concentration reduces the local supply of entrepreneurs. JEL codes: R11, R53, J24, N95 ∗Heblich: University of Toronto, CESifo, IfW Kiel, IZA, SERC;
[email protected]; Seror: University of Bristol, Paris School of Economics, DIAL,
[email protected]; Xu: China Construction Bank,
[email protected]; Zylberberg: University of Bristol, CESifo, Alan Turing Institute;
[email protected]. This work was part-funded by the Eco- nomic and Social Research Council (ESRC) through the Applied Quantitative Methods Network: Phase II, grant number ES/K006460/1, and a BA/Leverhulme Small Research Grant, Reference SRGn171331. We are grateful to Sam Asher, Kristian Behrens, Sylvie D´emurger, Christian Dust- mann, James Fenske, Richard Freeman, Jason Garred, Ed Glaeser, Flore Gubert, Marc Gurgand, Ruixue Jia, Vernon Henderson, Matthew Kahn, Sylvie Lambert, Florian Mayneris, Alice Mes- nard, Thomas Piketty, Simon Quinn, Steve Redding, Arthur Silve, Uta Sch¨onberg, Jon Temple, and Liam Wren-Lewis for very useful discussions.