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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.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 937.

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Date of creation: 2009
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Handle: RePEc:fpr:ifprid:937
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