A panel data approach for program evaluation: measuring the benefits of political and economic integration of Hong Kong with Mainland China



CHENG HSIAO,a,b,c H. STEVE CHINGb AND SHUI KI WANd*
a University of Southern California, Los Angeles, CA, USA
b City University of Hong Kong, Kowloon, Hong Kong
c WISE, Xiamen University, Xiamen, China
d Hong Kong Baptist University, Kowloon, Hong Kong
SUMMARY
We propose a simple-to-implement panel data method to evaluate the impacts of social policy. The basic idea
is to exploit the dependence among cross-sectional units to construct the counterfactuals. The cross-sectional
correlations are attributed to the presence of some (unobserved) common factors. However, instead of trying
to estimate the unobserved factors, we propose to use observed data. We use a panel of 24 countries to
evaluate the impact of political and economic integration of Hong Kong with mainland China. We find that
the political integration hardly had any impact on the growth of the Hong Kong economy. However, the
economic integration has raised Hong Kong’s annual real GDP by about 4%.