Institutional Barriers and Industry Dynamics
54 Pages Posted: 1 Mar 2009 Last revised: 11 Apr 2013
Date Written: January 2013
This study demonstrates new entrants exhibit higher productivity but also higher exit hazard than incumbents in post-liberalization China. We argue this seemingly paradoxical relationship is attributable to institutional barriers, defined as the hindrance in the institutional environment that prevents market selection forces to function. New entrants require higher productivity to compensate for those institutional barriers, which in turn implies a higher exit hazard after controlling for productivity. Our empirical findings support this argument and further show that the differences in productivity and exit hazard between new entrants and incumbents become smaller where and when institutional barriers recede. By integrating economic and institutional perspectives, we highlight the importance of institutional factors in shaping industry evolution.
Keywords: industry dynamics, institutional barriers, incumbents, new entrants, liberalization
JEL Classification: C23, D21, D24, L10, O10
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