Firm Quasi-Dynamics in the Chinese Manufacturing Industries

Abstract

We explore the firm quasi-dynamics (entry/exit and growth) in the Chinese manufacturing industries and investigate how these dynamics vary across regions. Our results show that relative to provinces with less developed economies, in provinces with more developed economies: (1) There are higher shares of new firms; (2) New firms are smaller and more labor-intensive; (3) Firms exit at a quicker rate and surviving firms grow faster. These results point toward cross-region differences in market efficiency in terms of how much it costs a firm to enter or exit the market. Our findings shed light on how firms should adapt their strategies across regions and how the government should create sound policies on industrial upgrading and relocation.

Keywords: firm dynamics, entry and exit, industrial shift, market thickness, labor cost

JEL Classification: D24, L25, O14