IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Cluster-based industrialization in China: Financing and performance

  • Long, Cheryl
  • Zhang, Xiaobo

China's rapid industrialization despite the lack of a well developed financial system seems to defy the conventional thinking on the role of finance in development. This paper tries to explain the puzzle from the clustering point of view. Based on firm-level data from two recent censuses, we find that within industrial clusters: finer division of labor lowers the capital barriers to entry; closer proximity makes the provision of trade credit among firms easier. With less reliance on external financing, more small firms emerge within clusters, leading to higher levels of export and total factor productivity thanks to the resultant more fierce competition.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 84 (2011)
Issue (Month): 1 (May)
Pages: 112-123

in new window

Handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:112-123
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ravallion, Martin & Chen, Shaohua, 2007. "China's (uneven) progress against poverty," Journal of Development Economics, Elsevier, vol. 82(1), pages 1-42, January.
  2. Raymond Fisman & Inessa Love, 2003. "Trade Credit, Financial Intermediary Development, and Industry Growth," Journal of Finance, American Finance Association, vol. 58(1), pages 353-374, 02.
  3. Bai, Chong-En & Du, Yingjuan & Tao, Zhigang & Tong, Sarah Y., 2004. "Local protectionism and regional specialization: evidence from China's industries," Journal of International Economics, Elsevier, vol. 63(2), pages 397-417, July.
  4. repec:tpr:qjecon:v:108:y:1993:i:3:p:717-37 is not listed on IDEAS
  5. Andrés Rodríguez-Clare, 2005. "Clusters and Comparative Advantage: Implications for Industrial Policy," IDB Publications (Working Papers) 6830, Inter-American Development Bank.
  6. Antonio Ciccone, 1998. "Agglomeration-effects in Europe," Economics Working Papers 499, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 1999.
  7. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
  8. Huang, Zuhui & Zhang, Xiaobo & Zhu, Yunwei, 2007. "The role of clustering in rural industrialization: A Case Study of the Footwear Industry in Wenzhou," IFPRI discussion papers 705, International Food Policy Research Institute (IFPRI).
  9. Sonobe, Tetsushi & Hu, Dinghuan & Otsuka, Keijiro, 2004. "From inferior to superior products: an inquiry into the Wenzhou model of industrial development in China," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 542-563, September.
  10. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2006. "How important are financing constraints ? The role of finance in the business environment," Policy Research Working Paper Series 3820, The World Bank.
  11. Audretsch, David B & Feldman, Maryann P, 1998. "Innovation in Cities: Science-Based Diversity, Specialization and Localized Competition," CEPR Discussion Papers 1980, C.E.P.R. Discussion Papers.
  12. Lu, Jiangyong & Tao, Zhigang, 2007. "Trends and Determinants of China’s Industrial Agglomeration," MPRA Paper 6597, University Library of Munich, Germany.
  13. Jianqing Ruan & Xiaobo Zhang, 2009. "Finance and Cluster-Based Industrial Development in China," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 143-164, October.
  14. Chang-Tai Hsieh & Peter J Klenow, 2008. "Misallocation and Manufacturing TFP in China and India," 2008 Meeting Papers 121, Society for Economic Dynamics.
  15. Zhang, Xiaobo & Tan, Kong-Yam, 2007. "Incremental Reform and Distortions in China’s Product and Factor Markets," MPRA Paper 6804, University Library of Munich, Germany.
  16. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  17. Ciccone, Antonio & Papaioannou, Elias, 2006. "Human capital, the structure of production, and growth," Working Paper Series 0623, European Central Bank.
  18. Kjetil Storesletten & Fabrizio Zilibotti & Zheng Song, 2009. "Growing like China," 2009 Meeting Papers 912, Society for Economic Dynamics.
  19. Anas, Alex, 2001. "By Alex Anas. Forthcoming in Regional Science and Urban Economics. The Spatial Economy: Cities, Regions, and International Trade, Masahisa Fujita, Paul Krugman and Anthony J. Venables, MIT Press, Camb," Regional Science and Urban Economics, Elsevier, vol. 31(5), pages 601-615, September.
  20. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
  21. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  22. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  23. T. Sonobe & D. Hu & K. Otsuka, 2002. "Process of Cluster Formation in China: A Case Study of a Garment Town," Journal of Development Studies, Taylor & Francis Journals, vol. 39(1), pages 118-139.
  24. Xu, Chenggang & Zhang, Xiaobo, 2009. "The evolution of Chinese entrepreneurial firms: Township-village enterprises revisited," IFPRI discussion papers 854, International Food Policy Research Institute (IFPRI).
  25. Franklin Allen & Jun Qian & Meijun Qian, 2002. "Law, Finance, and Economic Growth in China," Center for Financial Institutions Working Papers 02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  26. Cull, Robert & Xu, Lixin Colin & Zhu, Tian, 2009. "Formal finance and trade credit during China's transition," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 173-192, April.
  27. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 983-1028, December.
  28. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1091-1135.
  29. repec:tpr:qjecon:v:124:y:2009:i:4:p:1403-1448 is not listed on IDEAS
  30. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, June.
  31. Michael E. Porter, 2000. "Location, Competition, and Economic Development: Local Clusters in a Global Economy," Economic Development Quarterly, , vol. 14(1), pages 15-34, February.
  32. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
  33. Abhijit V. Banerjee & Andrew F. Newman, 1990. "Occupational Choice and the Process of Development," Discussion Papers 911, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  34. Wen, Mei, 2004. "Relocation and agglomeration of Chinese industry," Journal of Development Economics, Elsevier, vol. 73(1), pages 329-347, February.
  35. Keijiro Otsuka, 2006. "Cluster-Based Industrial Development: A View From East Asia," The Japanese Economic Review, Japanese Economic Association, vol. 57(3), pages 361-376.
  36. Hausmann, Ricardo & Klinger, Bailey, 2006. "Structural Transformation and Patterns of Comparative Advantage in the Product Space," Working Paper Series rwp06-041, Harvard University, John F. Kennedy School of Government.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:84:y:2011:i:1:p:112-123. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.