Expansion in the shrinking cities: Does place-based policy help to curb urban shrinkage in China?

Currently, China is experiencing rapid urbanization, while most cities with a persistent population loss are experiencing urban expansion. This seemingly contradictory pattern of "expansion in shrinkage" arises from the place-based policies. According to the efficiency-priority principle, place-based policies should be applied to densely populated cities. For regional balance, however, these policies are being increasingly implemented in shrinking cities. As a result, the following often-overlooked but highly important question arises: are place-based policies beneficial for shrinking cities? Alternatively, can the pattern of "expansion in shrinkage" succeed in the long run? Concerning these issues, we first identified 37 population-shrinking cities and 144 density-shrinking cities from 2006 to 2016 in China. By using the upgrade of development zones as the source of the exogenous variation in the implementation of place-based policies, we identified the causal effects of place-based policies on urban shrinkage. The results show that a development zone policy helps to curb the population loss of shrinking cities, and this effect is enhanced over time. In contrast, the declining population density did not show a significant change due to the expansion of urban construction land caused by the development zone policy. This indicates that in the short term, the development zone policy in shrinking cities curbs population loss at the expense of resource allocation efficiency. In the third year of the policy, however, the decline in urban population density begins to slow down. This is a signal that the development zone policy in shrinking cities may recover the initial efficiency loss, while curbing population loss in the future. In the long run, the success of the "expansion in shrinkage" pattern depends on the urban agglomeration economy. In addition, the curbing-effect on population loss is different depending on the characteristics of cities and development zones.