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Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries

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  • Xu, Cheng-Gang
  • Guo, Di
  • Jiang, Kun
  • Yang, Xiyi

Abstract

We examine the effects of China’s industrial clustering on resource reallocation efficiency across firms. Based on our county-industry level DBI index panel, we find that industrial clustering significantly increases local industries’ productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters facilitate higher entry rates and exit rates; and (ii) within clusters’ environment the dispersion of individual firm’s markup is significantly reduced, indicating intensified local competition within clusters. The identification issues are carefully addressed by instrumental variable (IV) regressions.

Suggested Citation

  • Xu, Cheng-Gang & Guo, Di & Jiang, Kun & Yang, Xiyi, 2020. "Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries," CEPR Discussion Papers 14506, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14506
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    More about this item

    Keywords

    Industrial cluster; Productivity growth; Resource reallocation; Competition;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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