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State and Market Integration in China: A Spatial Econometrics Approach to ‘Local Protectionism’

41 Pages Posted: 9 Feb 2010  

Carsten Herrmann-Pillath

Max Weber Center for Advanced Cultural and Social Studies

Alexander Libman

Frankfurt School of Finance and Management

Xiaofan Yu

affiliation not provided to SSRN

Date Written: February 8, 2010

Abstract

In the past two decades, controversial evidence has been produced supporting the case for local protectionism in China. This paper overviews the most important contributions and presents a new approach which applies spatial econometrics on prefectural-level data. The main advantage of this method is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders on spatial interdependences, as we compare within province and across province growth spillovers for neighboring prefectures. We show that provincial borders exert a strong impact on spillovers. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. Yet, we are cautious in interpreting this as evidence for local protectionism, and propose the notion of ‘cellularity’ as an alternative explanantion. Cellularity results from a comfluence of different factors, such as administrative structure, institutional changes and regional culture.

Keywords: domestic market integration in China, local protectionism, spatial econometrics, growth spillovers, expenditure spillovers, cellularity

JEL Classification: H7, O18, P23, P26, R11

Suggested Citation

Herrmann-Pillath, Carsten and Libman, Alexander and Yu, Xiaofan, State and Market Integration in China: A Spatial Econometrics Approach to ‘Local Protectionism’ (February 8, 2010). Available at SSRN: https://ssrn.com/abstract=1549602 or http://dx.doi.org/10.2139/ssrn.1549602

Carsten Herrmann-Pillath (Contact Author)

Max Weber Center for Advanced Cultural and Social Studies ( email )

Nordhäuserstr. 74
Erfurt, 90228
Germany

Alexander Libman

Frankfurt School of Finance and Management ( email )

Sonnemannstrasse 9-11
Frankfurt, D 58453
Germany

Xiaofan Yu

affiliation not provided to SSRN ( email )

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