Growing Through Competition: The Reduction of Entry Barriers Among Chinese Manufacturing Firms

64 Pages Posted: 12 Feb 2021

See all articles by Helu Jiang

Helu Jiang

Shanghai University of Finance and Economics

Yu Zheng

Queen Mary University of London

Lijun Zhu

Peking University

Date Written: February 1, 2021

Abstract

Exploiting the gradualism of the Chinese economic reforms and cross-sectional variations in entry rates, we show empirical evidence from firm-level data that industries with higher entry rates achieve higher growth and a more competitive market structure in subsequent years. We then embed firm entry into a model of endogenous productivity and market structure with heterogeneous firms and sectors, and calibrate it to the Chinese manufacturing sector in 2004-7. We find the positive impact of entry on growth is achieved primarily through a pro-competitive effect, whereby entry induces endogenously a larger fraction of industries to be more competitive in the economy. We quantify the contribution on growth from the reduction of entry barriers associated with the state-owned enterprise reforms in the late 1990s and early 2000s and find it explains 20% of the aggregate growth of the manufacturing sector from 2004-7. More generally, we highlight the critical role of reducing entry barriers in promoting competition and growth in developing countries.

JEL Classification: D22, D43, O11, O30, O47

Suggested Citation

Jiang, Helu and Zheng, Yu and Zhu, Lijun, Growing Through Competition: The Reduction of Entry Barriers Among Chinese Manufacturing Firms (February 1, 2021). CEPR Discussion Paper No. DP15763, Available at SSRN: https://ssrn.com/abstract=3783989

Helu Jiang (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Yu Zheng

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Lijun Zhu

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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