Can industrial clusters narrow non-frontier firms’ productivity gaps? Evidence from China’s strategic emerging industry cluster policy

This study examines whether China’s strategic emerging industry cluster policy (SEICP) narrows the productivity gaps between non-frontier firms and their respective industry productivity frontiers. Using data on Shanghai and Shenzhen A-share listed firms from 2014 to 2024, we exploit the introduction of the SEICP in 2019 and employ a difference-in-differences design. We find that the SEICP significantly narrows the productivity gaps of non-frontier firms. Mechanism analyses provide evidence consistent with the view that alleviating financing constraints and lowering internal coordination costs strengthen firms’ catch-up capability, while a higher innovation level and the accumulation of high-skilled human capital enhance their absorptive capacity. The gap-narrowing effect is stronger among younger firms, firms with greater asset adjustment flexibility, firms initially farther from their industry productivity frontiers, and firms in high-technology industries. Further analyses indicate that higher institutional ownership and stronger local intellectual property protection reinforce this effect. These findings highlight the role of government-led industrial cluster policy in improving the relative productivity position of non-frontier firms.