Industrial agglomeration and (the lack of) competition

• China’s economic growth is often attributed to the rapid proliferation of special economic zones (SEZs).
• The results of this project suggests that gains to firms arising from the tax and regulatory incentives they receive for locating inside an SEZ may come at a cost to consumers. 
• We found that SEZs in China actually promote collusion. Our ‘index of collusion’ is four times as high in the SEZs we study as it is outside of the zones.  
• In addition, we find high rates of collusion in certain other industrial clusters, even those not designated SEZs. Current research is investigating whether impacts in India are similar.

This project examined the relationship between market power and industrial agglomeration/clusters, such as special economic zones (SEZs), in order to better evaluate the impacts of development policies that promote or support industrial clusters. We addressed whether any industrial agglomerations are associated with anti-competitive or collusive behavior; if so, what characteristics or types of industries are most vulnerable to anti-competitive behavior; and whether industrial cluster policies have contributed to anti-competitive behavior.

We also assessed the costs of anti-competitive behavior on domestic producers, domestic consumers, and foreign purchasers, and whether these are substantial enough to negate anticipated benefits. Finally, a comparative analysis examined the extent to which these findings are common both within and across India and China, and in what ways they differ.