Industrial clusters in the long run: Evidence from Million-Rouble plants in China

We study the impact of large, successful manufacturing plants on other local producers in China, focusing on "Million-Rouble Plants" built in the 1950s during a brief alliance with the U.S.S.R. The ephemeral geopolitical situation and the locations of allied and enemy airbases provide exogenous variation in plant siting. We find a boom-and-bust pattern: Counties hosting these plants were 80% more productive than control counties in 1982 but 20% less productive by 2010. This decline reflects the performance of local establishments, which exhibit low productivity, limited innovation, and high markup. Specialization hindered spillovers, preventing the emergence of new clusters and local entrepreneurship.