The Growth Tide: Quasi-Experimental Evidence on the Regional Economic Impacts of Mega-Dams

Yan, Wenshou and Wang, Ruoxuan and Huang, Kaixing (2025): The Growth Tide: Quasi-Experimental Evidence on the Regional Economic Impacts of Mega-Dams.

Abstract

Large-scale hydropower dams are among the most costly and controversial infrastructure projects, yet credible evidence on their regional economic impacts is scarce. This paper provides the first quasi-experimental estimate of the impact of the Three Gorges Project—the world’s largest dam—on regional economic growth. Using a difference-in-differences design with county level data, we find that the project raised GDP per capita in directly affected counties (which account for 11.6% of China’s GDP) by 9.1%. These gains were driven by improved navigation and trade, industrial land creation, and a moderated local climate—not merely by increased electricity supply. The project has also significantly accelerated the economic shift from agriculture to industry and services. However, the benefits were starkly unequal: downstream counties saw a 13.8% increase, while upstream counties experienced negligible gains, a divergence explained by asymmetric changes in land avail able for development. A cost-benefit analysis shows that considering only direct power revenues yields a negative return (-65.5%), but incorporating regional growth spillovers reveals a strongly positive return of 322.3%. Our findings demonstrate that the economic justification for mega-dams hinges on their indirect growth effects, which are large but spatially concentrated.

• Item Type: MPRA Paper
• Language: English
• Keywords: Mega-dams, Regional economic growth, Spatial heterogeneity, Cost-benefit analysis
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis ; Housing ; Infrastructure; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water

References

1. Abadie, Alberto, Alexis Diamond, and Jens Hainmueller, “Synthetic control methods for comparative case studies: Estimating the effect of California's tobacco control program,” Journal of the American Statistical Association, 2010, 105 (490), 493–505.

2. Abadie, Alberto and Javier Gardeazabal, “The economic costs of conflict: A case study of the Basque Country,” American Economic Review, 2003, 93 (1), 113–132.

3. Ansar, Atif, Bent Flyvbjerg, Alexander Budzier, and Daniel Lunn,“Should we build more large dams? The actual costs of hydropower megaprojectdevelopment,” Energy Policy, 2014, 69, 43–56.

4.Blanc, Elodie and Eric Strobl, “Is small better? A comparison of the effect of large and small dams on cropland productivity in South Africa,” The World Bank Economic Review, 2014, 28 (3), 545–576

5. Bluhm, Richard and Melanie Krause, “Top lights: Bright cities and their contribution to economic development,” Journal of Development Economics, 2022, 157, 102880.