Regional development through place-based policies: Evidence from a spatial discontinuity

In 2002 the Indian government targeted the new state of Uttarakhand with massive improvements in infrastructure, a generous investment subsidy, and a complete exemption from corporate and excise taxes. I estimate the causal effect of this policy on economic development by exploiting the spatial discontinuity created by the new state border. Nighttime light emissions rise sharply in the targeted state, implying a 28 percent increase in output. Village public goods, farm employment, and proxies for household welfare rise in tandem. I rule out that the effect is driven by decentralization of policy, improvements in business regulations, or differential trends at the border.