Military Investment and the Rise of Industrial Clusters: Evidence from China's First Industrial Policy, 1858-1937

Topic：Military Investment and the Rise of Industrial Clusters: Evidence from China's First Industrial Policy, 1858-1937

Speaker：BO Shiyu（Associate Professor of Economics, Institute for Economic and Social Research, Jinan University）

Host：HANG Jing, Assistant Professor, Lingnan College

Time and Date：16:00-18:30, Nov. 19, 2021

Venue: Room 201, Lingnan MBA Building

Abstract:

This paper studies the short- and long-term impact of large-scale military investment on civilian industrial growth by focusing on China's first industry-promotion policy initiated in the 1860s. Panel data from 1858 to 1937 suggest that the program generated positive effect on civilian firm entry, but the effect appeared only after the government relaxed constraints on the entry of private firms. Long-run analysis shows that counties with more military investment under the program, driven by plausibly exogenous ex ante political connections, had greater output in civilian industries in the 1930s, while the effect was localized without geographic spillover. The impact was mainly through input-output linkage and rise of modern banks instead of human capital and institutions. Further cost-benefit analysis suggests the program was not the most effective way to make the investment.