Persistent effects of universities on local industrial growth: Evidence from China's policy-induced college relocation in the 1950s

Abstract

This paper examines the long-term impact of universities on local industrial development by leveraging a large-scale department relocation program in China during the 1950s, which reassigned more than two thirds of all university departments nationwide. While these relocations had limited influence under the planned economy, their impact became increasingly pronounced after China's economic liberalization in 1978. Our findings reveal substantial effects on total employment, firm numbers, and productivity in industries technologically related to the relocated departments. Importantly, these effects intensified over time, in sharp contrast to contemporaneous place-based policies that primarily redistributed physical capital. We highlight direct knowledge spillovers and the formation of industry-specific local talent pool as two underlying mechanisms driving the relocation effects.