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Risk sharing and industrial specialization in China

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  • Du, Julan
  • He, Qing
  • Zhang, Ce

Abstract

We investigate how risk sharing shapes industrial specialization across prefecture-level cities in China. By unbundling the mechanisms of risk sharing, we find that ex ante risk sharing generates a first-order stimulant effect on the geographical concentration of manufacturing industries, particularly for non-state-owned enterprises and cyclical industries. Ex post risk sharing matters only for state-owned enterprises. This result remains robust to instrument variable estimation and controlling for other determinants of industrial specialization. Finally, we show that interregional labor migration (special fiscal transfers) plays an important role in promoting interregional ex ante (ex post) risk sharing. The study implies that much more risk sharing and efficiency gains from industrial specialization would be achieved if capital markets and credit markets are better developed.

Suggested Citation

  • Du, Julan & He, Qing & Zhang, Ce, 2022. "Risk sharing and industrial specialization in China," Journal of Comparative Economics, Elsevier, vol. 50(2), pages 599-626.
    • Handle: RePEc:eee:jcecon:v:50:y:2022:i:2:p:599-626
    DOI: 10.1016/j.jce.2022.01.003
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