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Barriers to Entry and Regional Economic Growth in China

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  • Loren Brandt

    (University of Toronto)

  • Gueorgui Kambourov

    (University of Toronto)

  • Kjetil Storesletten

    (University of Oslo)

Abstract

The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; subsequently we observe rapid convergence in terms of new firm start-up rates, productivity, and wages. To analyze the drivers of this behavior, we construct a Melitz (2003) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data for 1995, 2004, and 2008, we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient friction for explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the rapid manufacturing growth over the 1995-2008 period.

Suggested Citation

  • Loren Brandt & Gueorgui Kambourov & Kjetil Storesletten, 2018. "Barriers to Entry and Regional Economic Growth in China," 2018 Meeting Papers 954, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:954
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    Cited by:

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    3. Ma, Xiao, 2020. "College Expansion, Trade and Innovation: Evidence from China," MPRA Paper 109469, University Library of Munich, Germany.
    4. Ouyang, Difei, 2024. "State-owned enterprise presence: Local spillovers," China Economic Review, Elsevier, vol. 84(C).
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    7. Brandt, Loren & Lim, Kevin, 2024. "Opening up in the 21st century: A quantitative accounting of Chinese export growth," Journal of International Economics, Elsevier, vol. 150(C).
    8. Lixing Li & Qihong Liu & Changyu Ren, 2022. "Firms Quasi‐dynamics in Chinese Manufacturing Industry," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(5), pages 102-127, September.
    9. Bo, Shiyu & Liu, Cong & Zhou, Yan, 2023. "Military investment and the rise of industrial clusters: Evidence from China’s self-strengthening movement," Journal of Development Economics, Elsevier, vol. 161(C).
    10. Helu Jiang & Yu Zheng & Lijun Zhu, 2024. "Entry Barriers And Growth: The Role Of Endogenous Market Structure," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1221-1248, August.
    11. Loren Brandt & Kevin Lim, 2020. "Accounting for Chinese Exports," Working Papers tecipa-680, University of Toronto, Department of Economics.
    12. Shi, Xiangyu & Xi, Tianyang & Zhang, Xiaobo & Zhang, Yifan, 2021. "“Moving Umbrella”: Bureaucratic transfers and the comovement of interregional investments in China," Journal of Development Economics, Elsevier, vol. 153(C).
    13. Liang Zheng, 2021. "The impact of state-owned enterprises on the employment growth of manufacturing in Chinese cities: Evidence from economic census microdata," Urban Studies, Urban Studies Journal Limited, vol. 58(8), pages 1655-1673, June.
    14. Brandt,Loren & Litwack,John & Mileva,Elitza Alexandrova & Wang,Luhang & Zhang,Yifan-000568579 & Zhao,Luan, 2020. "China's Productivity Slowdown and Future Growth Potential," Policy Research Working Paper Series 9298, The World Bank.
    15. Chuantao Cui & Leona Shao-Zhi Li, 2024. "More but not better: Career incentives of local leaders and entrepreneurial entry in China," Working Papers 202417, University of Macau, Faculty of Business Administration.
    16. Li, Zhaohua & Pang, Suqin & Zhu, Zhiyun, 2024. "The impact of pilot free trade zones on entrepreneurship: Evidence from a quasi-natural experiment in China," Socio-Economic Planning Sciences, Elsevier, vol. 92(C).
    17. Yang, Xiaoliang & Barros, Lucy & Matthews, Kent & Meenagh, David, 2024. "The dynamics of redistribution, inequality and growth across China’s regions," Journal of Policy Modeling, Elsevier, vol. 46(3), pages 613-637.
    18. Yuting Li & Karsten Mau & Mingzhi Xu, 2023. "Rising Wages and Intra-Country Industry Relocation: Evidence from China," Open Economies Review, Springer, vol. 34(3), pages 579-615, July.
    19. Cui, Chuantao & Li, Leona Shao-Zhi, 2023. "Trade policy uncertainty and new firm entry: Evidence from China," Journal of Development Economics, Elsevier, vol. 163(C).

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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • P25 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Urban, Rural, and Regional Economics
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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