Barriers to Entry and Regional Economic Growth in China
Department of Economics
University of Toronto
Friday, March 16, 2018
Taylor-Hibbard Seminar Room (Rm103)
12:00 pm-1:15 pm
The non-state manufacturing sector has been the engine of China's economic transformation. We document that while the performance of this sector exhibited large regional differences until the 1990s, we subsequently observe rapid convergence in terms of new rm start-up rates, productivity, and wages. To analyze the drivers of this behavior, we construct a Melitz (2003) model that incorporates location-specic 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 dierences in performance across prefecture 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 nd that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may have been important in explaining the rapid manufacturing growth over the 1995-2008 period.