Clustering, Growth, and Inequality in China

Abstract

This study examines the effects of China’s industrial clusters on its economic growth and urban–rural income inequality. A density-based index (DBI) is developed to capture the unique features of such clusters in China. From a county-level DBI panel data constructed based on firm-level and county-level datasets, we find that strong clusters and entrepreneurial clusters substantially enhance economic growth. Moreover, entrepreneurial clusters reduce urban–rural income inequality by increasing the income of rural residents. Identification issues are carefully addressed by deploying an instrumental variable approach.

Keywords: China, clustering, geography, growth and inequality, institutions

JEL Classification: O14, O15, R11