Market Integration, Politics and Culture: The Spatial Reach of Markets in Hyper-Growth China

53 Pages Posted: 22 Jun 2011

See all articles by Carsten Herrmann-Pillath

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: June, 22 2011

Abstract

We contribute to the rich literature on the role of political boundaries for international and inter-regional transactions by introducing a new methodology and testing it on an important case, China. This paper is based on new identification approach, which combines the use of sub-regional data with formal analysis of spatial spillovers to explicitly test for the presence and reasons of the driving forces for what has been coined the ‘cellularity’ of the Chinese economy. Specifically, we compare two explanations for the spatial fragmentation: administrative structure (including, but not limited to the infamous ‘provincial protectionism’) and linguistic heterogeneity (considered as proxy for the factors of culture and identity). The main advantage of the method used in this paper is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders and linguistic zones 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, but within individual provinces China is fairly integrated. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. On the other hand, our analysis does not find any significant impact of language on the emergence of the cellularity.

Keywords: growth spillovers, border effects, culture and economic integration, China, local protectionism, spatial econometrics

JEL Classification: H7, F1, P2

Suggested Citation

Herrmann-Pillath, Carsten and Libman, Alexander and Yu, Xiaofan, Market Integration, Politics and Culture: The Spatial Reach of Markets in Hyper-Growth China (June, 22 2011). Available at SSRN: https://ssrn.com/abstract=1869964 or http://dx.doi.org/10.2139/ssrn.1869964

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 )

Adickesallee 32-34
Frankfurt, 60322
Germany

Xiaofan Yu

affiliation not provided to SSRN ( email )

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