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State and market integration in China: A spatial econometrics approach to 'local protectionism'

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  • Herrmann-Pillath, Carsten
  • Libman, Alexander
  • Xiaofan, Yu

Abstract

In the past two decades, controversial evidence has been produced supporting the case for local protectionism in China. This paper overviews the most important contributions and presents a new approach which applies spatial econometrics on prefectural-level data. The main advantage of this method is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders on spatial interdependences, as we compare within province and across province growth spillovers for neighbouring prefectures. We show that provincial borders exert a strong impact on spillovers. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. Yet, we are cautious in interpreting this as evidence for local protectionism, and propose the notion of 'cellularity' as an alternative explanation. Cellularity results from a confluence of different factors, such as administrative structure, institutional changes and regional culture. --

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Bibliographic Info

Paper provided by Frankfurt School of Finance and Management in its series Frankfurt School - Working Paper Series with number 137.

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Date of creation: 2010
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Handle: RePEc:zbw:fsfmwp:137

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Related research

Keywords: Domestic market integration in China: local protectionism; spatial econometrics; growth spillovers; expenditure spillovers; cellularity;

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References

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  1. Sandra Poncet, 2004. "A Fragmented China," Tinbergen Institute Discussion Papers 04-103/2, Tinbergen Institute.
  2. Chong-En Bai & Yingjuan Du & Zhigang Tao & Sarah Y. Tong, 2003. "Local Protectionism and Regional Specialization: Evidence from China’s Industries," William Davidson Institute Working Papers Series 2003-565, William Davidson Institute at the University of Michigan.
  3. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  4. Nicole Madariaga & Sandra Poncet, 2006. "FDI in Chinese Cities: Spillovers and Impact on Growth," Working Papers 2006-22, CEPII research center.
  5. Maria Abreu & Henri L.F. de Groot & Raymond J.G.M. Florax, 2004. "Space and Growth," Tinbergen Institute Discussion Papers 04-129/3, Tinbergen Institute.
  6. Bai, Chong-En & Tao, Zhigang & Tong, Yueting Sarah, 2008. "Bureaucratic integration and regional specialization in China," China Economic Review, Elsevier, vol. 19(2), pages 308-319, June.
  7. Ravi Kanbur & Xiaobo Zhang, 2004. "Fifty Years of Regional Inequality in China: A Journey Through Central Planning, Reform and Openness," Working Papers 158, Institute for Social and Economic Change, Bangalore.
  8. Ritola, Maria, 2008. "Price convergence and geographic dimension of market integration: Evidence from China," BOFIT Discussion Papers 13/2008, Bank of Finland, Institute for Economies in Transition.
  9. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 682-697, November.
  10. Cecile Batisse & Sandra Poncet, 2003. "Protectionism and industry localization in Chinese provinces (?)," ERSA conference papers ersa03p147, European Regional Science Association.
  11. Carsten A. Holz, 2009. "No Razor's Edge: Reexamining Alwyn Young's Evidence for Increasing Interprovincial Trade Barriers in China," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 599-616, August.
  12. Tang, K. K., 1998. "Economic Integration of the Chinese Provinces: A Business Cycle Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 549-570.
  13. Poncet, Sandra, 2003. "Measuring Chinese domestic and international integration," China Economic Review, Elsevier, vol. 14(1), pages 1-21.
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