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State and market integration in China: A spatial econometrics approach to 'local protectionism'


  • Herrmann-Pillath, Carsten
  • Libman, Alexander
  • Xiaofan, Yu


In the past two decades, controversial evidence has been produced supporting the case for local protectionism in China. This paper overviews the most important contributions and presents a new approach which applies spatial econometrics on prefectural-level data. The main advantage of this method is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders on spatial interdependences, as we compare within province and across province growth spillovers for neighbouring prefectures. We show that provincial borders exert a strong impact on spillovers. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. Yet, we are cautious in interpreting this as evidence for local protectionism, and propose the notion of 'cellularity' as an alternative explanation. Cellularity results from a confluence of different factors, such as administrative structure, institutional changes and regional culture.

Suggested Citation

  • Herrmann-Pillath, Carsten & Libman, Alexander & Xiaofan, Yu, 2010. "State and market integration in China: A spatial econometrics approach to 'local protectionism'," Frankfurt School - Working Paper Series 137, Frankfurt School of Finance and Management.
  • Handle: RePEc:zbw:fsfmwp:137

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    References listed on IDEAS

    1. Bai, Chong-En & Tao, Zhigang & Tong, Yueting Sarah, 2008. "Bureaucratic integration and regional specialization in China," China Economic Review, Elsevier, vol. 19(2), pages 308-319, June.
    2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
    3. Kanbur, Ravi & Zhang, Xiaobo, 2004. "Fifty Years of Regional Inequality in China: A Journey through Central Planning, Reform, and Openness," WIDER Working Paper Series 050, World Institute for Development Economic Research (UNU-WIDER).
    4. Cecile Batisse & Sandra Poncet, 2003. "Protectionism and industry localization in Chinese provinces (?)," ERSA conference papers ersa03p147, European Regional Science Association.
    5. Nicole Madariaga & Sandra Poncet, 2007. "FDI in Chinese Cities: Spillovers and Impact on Growth," The World Economy, Wiley Blackwell, vol. 30(5), pages 837-862, May.
    6. Poncet, Sandra, 2003. "Measuring Chinese domestic and international integration," China Economic Review, Elsevier, vol. 14(1), pages 1-21.
    7. 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.
    8. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 682-697, November.
    9. Carsten A. Holz, 2009. "No Razor's Edge: Reexamining Alwyn Young's Evidence for Increasing Interprovincial Trade Barriers in China," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 599-616, August.
    10. Tang, K. K., 1998. "Economic Integration of the Chinese Provinces: A Business Cycle Approach," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 13, pages 549-570.
    11. Maria Abreu & Henri L.F. de Groot & Raymond J.G.M. Florax, 2004. "Space and Growth," Tinbergen Institute Discussion Papers 04-129/3, Tinbergen Institute.
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    More about this item


    Domestic market integration in China: local protectionism; spatial econometrics; growth spillovers; expenditure spillovers; cellularity;

    JEL classification:

    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • P23 - Economic Systems - - Socialist Systems and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes


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