Working Paper: CEPR ID: DP14506
Authors: Di Guo; Kun Jiang; Chenggang Xu; Xiyi Yang
Abstract: We examine the effects of China’s industrial clustering on resource reallocation efficiency across firms. Based on our county-industry level DBI index panel, we find that industrial clustering significantly increases local industries’ productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters facilitate higher entry rates and exit rates; and (ii) within clusters’ environment the dispersion of individual firm’s markup is significantly reduced, indicating intensified local competition within clusters. The identification issues are carefully addressed by instrumental variable (IV) regressions.
Keywords: industrial cluster; productivity growth; resource reallocation; competition
JEL Codes: D2; H7; L1; O1; R1; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| industrial clustering (R32) | local industry productivity (O49) |
| industrial clustering (R32) | resource reallocation efficiency (D61) |
| industrial clustering (R32) | entry and exit rates of firms (L26) |
| entry and exit rates of firms (L26) | local competition (L13) |
| local competition (L13) | dispersion of individual firms' markups (L11) |
| dispersion of individual firms' markups (L11) | resource reallocation from less productive to more productive firms (R30) |
| industrial clustering (R32) | aggregate productivity (E23) |