Barriers to Entry and Regional Economic Growth in China

CEPR Discussion Paper No. DP14965

51 Pages Posted: 23 Jul 2020 Last revised: 16 Aug 2020

See all articles by Loren Brandt

Loren Brandt

University of Toronto

Gueorgui Kambourov

University of Toronto

Kjetil Storesletten

University of Oslo - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 2020

Abstract

Labor productivity in manufacturing differs starkly across regions in China. We document that productivity, wages, and start-up rates of non-state firms have nevertheless experienced rapid regional convergence after 1995. To analyze these patterns, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and entry barriers. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance and growth across prefectures. Entry barriers explain most of the differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector.

Keywords: capital distortions, China, convergence, Entry Barriers, Firm entry, growth, output distortions, SOE reform, transition

JEL Classification: D22, D24, E24, O11, O14, O16, O40, O53, P25, R13

Suggested Citation

Brandt, Loren and Kambourov, Gueorgui and Storesletten, Kjetil, Barriers to Entry and Regional Economic Growth in China (June 2020). CEPR Discussion Paper No. DP14965, Available at SSRN: https://ssrn.com/abstract=3650077

Loren Brandt (Contact Author)

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

Gueorgui Kambourov

University of Toronto ( email )

Toronto, M5S 3G8
Canada

Kjetil Storesletten

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
+47 2284 4009 (Phone)
+47 2285 5035 (Fax)

HOME PAGE: http://folk.uio.no/kjstore/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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