Place-based industrial policies in the long run

Summary — “Place-based industrial policies in the long run” (CEPR VoxEU, Stephan Heblich, Marlon Seror & Yanos Zylberberg, 18 July 2026)

This column examines the long-run effects of place-based industrial policy using a historical natural experiment: the Soviet Union’s 1950s “Million-Rouble Plants” programme (China’s “156 Program”), under which the USSR helped China build 149 state-of-the-art industrial facilities before the Sino-Soviet split abruptly ended the collaboration in 1961. Using exposure to potential aerial attacks — a factor that shaped plant siting decisions but became irrelevant after the split — as a source of exogenous variation, the authors find a striking rise-and-fall pattern: hosting a Million-Rouble Plant initially raised GDP per capita by roughly 80% and industrial employment share by 22 percentage points, far exceeding what the plants’ direct output alone would predict. However, treated and control counties experienced near-complete convergence by 1982–2010, and by 2010 treated counties were about 20% less productive than controls — not because the flagship plants declined (they remained highly productive) but because other local establishments in treated areas became overly specialised around the plants’ supply chains, exhibited low productivity and limited innovation, and struggled to retain entrepreneurial talent, which increasingly emigrated to other locations. The authors conclude that place-based industrial policy (relevant to programmes like the EU’s Smart Specialisation Strategy, India’s PLI schemes, and Indonesia’s nickel down-streaming policy) can trigger real short- and medium-run structural transformation, but policymakers should deliberately engineer diversified local production structures — rather than narrow single-firm specialisation — to sustain long-run knowledge spillovers, entrepreneurship and resilience to shocks.

There is growing evidence that place-based industrial policies lead to positive economic effects. This column analyses the “Million-Rouble Plants” programme of the 1950s when the Soviet Union helped China build state-of-the-art industrial facilities. By tracking the locations that benefitted, it finds positive economic spillovers in the short and medium run. Although the Million-Rouble Plants themselves…