Government-led regional integration and economic growth: Evidence from a quasi-natural experiment of urban agglomeration development planning policies in China

Abstract

Despite urban agglomeration plays a pivotal role in bolstering economic growth in developing countries, the specific mechanism of government-led regional integration in China impacting this growth has been understudied in the literature. This study innovatively uncovers such intricate mechanisms particularly focusing on industries and urban functions division, diversified agglomeration externalities, and urban network externalities within China's urban agglomerations. Our holistic framework integrating cooperation, sharing, matching, and learning mechanisms offers insights into their synergistic impact on economic growth. Drawing upon a quasi-natural experiment of urban agglomeration development planning policies in China, we employed a multi-period difference-in-difference model to examine the impact and underlying mechanisms of regional integration on economic growth. The robust benchmark outcomes reveal that government-led regional integration can notably promote urban economic growth. These promotion effects differ in terms of urban administrative level and the quantity and quality of central cities within urban agglomerations. Mechanism analysis findings illustrate that government-led regional integration can facilitate industries and urban functions division, foster diversified agglomeration and urban network externalities that, in turn, stimulate regional economic growth. Ultimately, we recommended that policymakers should intensify efforts to advance regional integration by enhancing common physical and institutional infrastructure.