# 1. Introduction

Many governments in the world have pursued place-based policies to address spatial disparities in economic growth. These interventions are intended to enhance the economic performance in certain areas of a country, through tax incentives, subsidies, land grants, infrastructure investment and other localized benefits to incentivize firms to relocate or invest in the targeted area. These policies have been widespread both in advanced economies and in developing countries in the past several decades. Traditionally, economists have been skeptical about place-based policies. While the efficiency and equity justifications of these policies are strong, their actual benefits and the distortions have long been debated (Austin, Glaeser and Summers 2018; Bartik 1991; Glaeser and Gottlieb 2008; Kline and Moretti 2014a, b).

Whether these policies can generate economic gains at the local or national level is largely an empirical question. However, the available empirical evidence is at best mixed. Although there is a strand of empirical literature on these interventions in advanced economies, only a few studies have attempted to rigorously evaluate place-based policies in developing countries (Duranton and Venables 2018; Neumark and Simpson 2015). Several of these studies show economic gains from place-based interventions, such as special economic zones in China (Lu, Wang and Zhu 2019; Wang 2013).

In this paper, we examine the effectiveness of a prominent place-based policy in India: the centrally sponsored New Industrial Policy for the state of Uttarakhand. Three reasons motivate this choice. First is the quasi-natural experiment nature of the policy. Uttarakhand is a unique state and was split from Uttar Pradesh for political reasons in 2000. And the New Industrial Policy was implemented only in Uttarakhand two years after the new state was created. Therefore, comparing performances between the two states provides an opportunity to evaluate the causal impact of the policy. Second is scale. Because of its comprehensiveness (including infrastructure investment and fiscal incentives) and large size (USD 34 billion), the New Industrial Policy is a good example of a “big push” development strategy in developing countries that is large enough to overcome the threshold effects of local economic development and generate observable impacts. Third is the heterogeneity across sectors. Some sectors received substantially more fiscal incentives than others. This sectoral difference in treatment allows us to assess the direct impact of the fiscal incentives as well as their indirect effects through spillovers between industries.

Our analysis consists of reduced-form evaluations of the Uttarakhand New Industrial Policy’s local impact on employment and firms in the non-agriculture sectors. We take advantage of recently available data— the 2013 round of the Economic Census of India, which captures almost all modern economic activities after the New Industrial Policy had been implemented for over a decade. We geo-reference the Economic Census to the digitized boundaries of towns and villages in India which have recently become available. This spatial granularity allows us to apply a rigorous boundary discontinuity design: taking towns and villages located in Uttarakhand within a short driving distance to the border between Uttarakhand and Uttar Pradesh as targeted places and taking similar bordering towns and villages located in Uttar Pradesh as controls. We explore a range of distance buffers from 40 to 100 kilometers on the either side of the border.

To assess validity of the quasi-natural experiment, we also geo-reference two previous rounds of the Economic Census, 1990 and 1998, to the same digitized boundaries. Although the georeferencing is not perfect due to the passage of time, we find no evidence that, in the period prior to the policy, the bordering places in Uttarakhand performed better or grew faster than the bordering places in Uttar 3