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Working paper 652

Loren Brandt, Gueorgui Kambourov, Kjetil Storesletten, "Barriers to Entry and Regional Economic Growth in China", 2020-01-05
Main Text (application/pdf) (5,891,534 bytes)

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: Chinese economic growth; SOEs; firm entry; entry barriers; capital wedges; output wedges; SOE reform.

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