Working Paper: CEPR ID: DP14965
Authors: Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
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: China; Growth; Transition; Convergence; Firm Entry; Entry Barriers; Capital Distortions; Output Distortions; SOE Reform
JEL Codes: O11; O14; O16; O40; O53; P25; R13; D22; D24; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state sector size (J45) | entry barriers (L13) |
| entry barriers (L13) | productivity (O49) |
| entry barriers (L13) | wages (J31) |
| state sector size (J45) | productivity (O49) |
| state sector size (J45) | wages (J31) |
| decrease in state sector size (H11) | decrease in entry barriers (L19) |
| decrease in entry barriers (L19) | increase in productivity (O49) |
| decrease in entry barriers (L19) | increase in wages (J38) |
| decline in SOE employment (J68) | reduction in entry barriers (L19) |
| reduction in entry barriers (L19) | faster growth in wages (J39) |
| reduction in entry barriers (L19) | faster growth in output per worker (O49) |
| reduction in entry barriers (L19) | faster growth in aggregate total factor productivity (TFP) (O49) |