TRADE: Barriers to Entry and Regional Economic Growth in China; Professor Loren BRANDT (University of Toronto)

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 changes in barriers are causally related to changes in the size of the state sector: a smaller state sector leads to lower entry barriers.

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