pollution from the combustion of fossil fuel is a major concern at the national scale due to the wide use of coal as the source of energy (Greenstone et al. 2012). Therefore, if there is significant displacement of firms in these places, we expect a drop in the particle pollution level post 2003 for the bordering towns and villages in Uttar Pradesh. In contrast, we find that PM 2.5 level consistently increased between 2003 and 2013 for the places within the 100-kilometer buffer to the border.<sup>13</sup> This finding does not support that industrial activities on the Uttar Pradesh side declined after the New Industrial Policy.

Our findings are consistent with the literature as well. Using panel data of formal manufacturing industries, Chaurey (2017) shows that there is no evidence that more factories closed down in the neighboring states, including Uttar Pradesh, compared to Uttarakhand. The study also finds no evidence of differential closure of firms or relocation of industrial activity in the neighboring states, including Uttar Pradesh, and in other major states in India before and after the implementation of the New Industrial Policy. Independently, Shenoy (2018) shows that the New Industrial Policy did not dampen output in Uttar Pradesh as being measured by the panel data on nighttime light intensity. Instead, output grew rapidly over the time in places close to the border between Uttar Pradesh and Uttarakhand. While the evidence of Chaurey (2017) is at the state level and Shenoy’s (2018) results are based on aggregated output, the combination of the two studies and our own analysis suggest that the impact of New Industrial Policy is not simply a relocation and displacement story.

Could policies other than the place-based New Industrial Policy be influencing our results? As mentioned in the empirical strategy section, other major policy initiatives were effective in both states, such as the Electricity Act 2003 and the Special Economic Zones Act of 2005. These policies are likely to not affect our results. Another potentially confounding candidate is the overall doing business environment in a state. Taking the state-level World Bank Doing Business indices as proxies, we find that Uttar Pradesh had implemented more reforms to improve business environment than Uttarakhand between 2002 and 2015 (World Bank 2015). Criminal record rate is another proxy for overall quality of governance. Based on data reported by the National Crime Records Bureau, we find that Uttar Pradesh and Uttarakhand’s rates of cognizable crimes experienced a parallel trend between 2001 and 2012, with Uttar Pradesh seeing greater year-to-year variations (NCRB 2012).

Overall, the New Industrial Policy, as a comprehensive package of infrastructure investment and fiscal incentives, stands out as the most important policy difference between the two states over the time period. The analysis on the impact of differential tax treatments across sectors gives us further confidence that our results reveal the impact of the New Industrial Policy more than other policies.

# 7. Conclusion

Previous studies have shown place-based policies to have mixed effects on economies. In this paper, we find that a large-scale industrial promotion scheme targeting the Indian state of Uttarakhand had a large positive impact on local employment outcomes. We apply a boundary discontinuity design and examine the impact of this policy in places close to the border between Uttar Pradesh and Uttarakhand, which were one state right before the promotion scheme. Most interestingly, we show that the place-based excise tax incentives as part of the promotion scheme had a direct positive impact on employment in the

> 13 The data are satellite-based and drawn from von Donkelaar (2016).

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