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Geographic clusters, regional productivity and resource reallocation across firms: Evidence from China

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  • Guo, Di
  • Jiang, Kun
  • Xu, Chenggang
  • Yang, Xiyi

Abstract

We link industrial clusters, regional productivity and resource reallocation efficiency with geographical and sectoral disaggregated data. Based on a county-industry level panel from 1998 to 2007 in China, we find that industrial clusters significantly increase 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 are associated with a higher firm turnover with increased entry and exit rates simultaneously; and (ii) within clusters' environment, the dispersion of individual firm's markup is significantly reduced, indicating intensified local competition within clusters. Such results suggest that industrial clusters in China help improve regional productivity and resource allocation efficiency with intensified competition and accelerated firm dynamics. The identification issues are carefully addressed by two-stage estimations with instrumental variables and other robustness checks.

Suggested Citation

  • Guo, Di & Jiang, Kun & Xu, Chenggang & Yang, Xiyi, 2023. "Geographic clusters, regional productivity and resource reallocation across firms: Evidence from China," Research Policy, Elsevier, vol. 52(2).
    • Handle: RePEc:eee:respol:v:52:y:2023:i:2:s0048733322002128
    DOI: 10.1016/j.respol.2022.104691
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    Keywords

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

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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