Comrades from the town: How did a factory‐commune pairing policy during the Send‐Down Movement propel rural industrialization in China?

Abstract This paper traces the institutional root of China's rural industrialization to a historical policy, which paired factories in urban areas with people's communes in the countryside during the Send‐Down Movement in the 1970s. The policy, initially intended to improve the lives of sent‐down youth (SDY), is believed to have provided some initial impetus for industrial development in rural areas before the marketization reform that began in the late 1970s. Based on a manually collected county‐level panel dataset of Zhejiang Province, we find that following the implementation of the pairing policy in 1974, counties that received a higher concentration of SDY, relative to their rural population, achieved faster growth in per capita industrial output of commune enterprises. Our results are consistent with various historical accounts. In addition, our tentative evidence shows that the pairing policy had a prolonged effect on rural economic development, lasting into the 1980s. Overall, our findings reveal the importance of some pre‐reform institutions in shaping China's unique paths towards industrialization.