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The Evolution of an Industrial Cluster in China

Author

Listed:
  • Belton M. Fleisher

    () (Department of Economics, Ohio State University)

  • Dinghuan Hu

    () (China Academy of Agricultural Sciences)

  • William McGuire

    () (Department of Agricultural, Environmental, and Development Economics, Ohio State University)

  • Xiaobo Zhang

    () (International Food Policy Research Institute (IFPRI))

Abstract

We use two rounds of surveys, in 2000 and 2008, in the Zhili Township children’s garment cluster in Zhejiang Province to examine in depth its evolution. Firm size has grown on average in terms of output and employment, and increasing divergence in firm sizes has been associated with a significant increase in specialization and outsourcing among firms in the cluster. Although initial investments have more than tripled, they remain low enough so that formal bank loans remain an insignificant source of finance. Accompanying lower entry barriers, there have been an increasing number of firms in the cluster, which have driven down profit and bid up wages, particularly since the year 2000. Facing severe competition, more firms have begun to upgrade their product quality. By the year 2007, nearly half of the sampled had established registered trademarks and nearly 20 percent had become ISO certified. Declining profit ratios to initial investment and stagnant TFP imply that the future of this industry is likely to rest on using more advanced technology and higher ratios of capital to labor, which imply increases in firm size and initial investment. Thus traditional sources of finance that do not require honest, efficient, and transparent courts are likely to fade as the need for improved legal and financial institutions become critical factor influencing China’s growth prospects.

Suggested Citation

  • Belton M. Fleisher & Dinghuan Hu & William McGuire & Xiaobo Zhang, 2009. "The Evolution of an Industrial Cluster in China," Working Papers 09-05, Ohio State University, Department of Economics.
  • Handle: RePEc:osu:osuewp:09-05
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    References listed on IDEAS

    as
    1. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.
    2. 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.
    3. Eiji Yamamura & Tetsushi Sonobe & Keijiro Otsuka, 2003. "Human capital, cluster formation, and international relocation: the case of the garment industry in Japan, 1968--98," Journal of Economic Geography, Oxford University Press, vol. 3(1), pages 37-56, January.
    4. 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.
    5. 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.
    6. Kong-Yam Tan, 2007. "Incremental Reform and Distortions in China's Product and Factor Markets," World Bank Economic Review, World Bank Group, vol. 21(2), pages 279-299, March.
    7. Huang, Zuhui & Zhang, Xiaobo & Zhu, Yunwei, 2008. "The role of clustering in rural industrialization: A case study of the footwear industry in Wenzhou," China Economic Review, Elsevier, vol. 19(3), pages 409-420, September.
    8. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185-185.
    9. Schmitz, Hubert & Nadvi, Khalid, 1999. "Clustering and Industrialization: Introduction," World Development, Elsevier, vol. 27(9), pages 1503-1514, September.
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    Cited by:

    1. Zheng, Liang & Zhao, Zhong, 2017. "What drives spatial clusters of entrepreneurship in China? Evidence from economic census data," China Economic Review, Elsevier, vol. 46(C), pages 229-248.
    2. Bellandi, Marco & Lombardi, Silvia, 2012. "Specialized markets and Chinese industrial clusters: The experience of Zhejiang Province," China Economic Review, Elsevier, vol. 23(3), pages 626-638.
    3. Sonobe, Tetsushi & Higuchi, Yuki & Otsuka, Keijiro, 2012. "Productivity growth and job creation in the development process of industrial clusters," Policy Research Working Paper Series 6280, The World Bank.
    4. Sulser, T. B., 2009. "Green and blue water accounting in the Limpopo and Nile basins: implications for food and agricultural policy," IWMI Working Papers H042476, International Water Management Institute.
    5. Shahid Yusuf, 2012. "From Technological Catch-up to Innovation : The Future of China’s GDP Growth," World Bank Other Operational Studies 12781, The World Bank.
    6. Lin, Hui-Lin & Li, Hsiao-Yun & Yang, Chih-Hai, 2011. "Agglomeration and productivity: Firm-level evidence from China's textile industry," China Economic Review, Elsevier, vol. 22(3), pages 313-329, September.
    7. Hu, Cui & Xu, Zhaoyuan & Yashiro, Naomitsu, 2015. "Agglomeration and productivity in China: Firm level evidence," China Economic Review, Elsevier, vol. 33(C), pages 50-66.

    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population

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