Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries

59 Pages Posted: 25 Mar 2020

See all articles by Di Guo

Di Guo

Brunel University London

Kun Jiang

University of Nottingham

Chenggang Xu

Cheung Kong Graduate School of Business

Xiyi Yang

ShanghaiTech University - School of Entrepreneurship and Management

Date Written: March 2020

Abstract

We examine the effects of China's industrial clustering on resource reallocation efficiency across firms. Based on our county-industry level DBI index panel, we find that industrial clustering significantly increases local industries' productivity by lifting the average firm productivity and reallocating resources from less to more productive firms. Moreover, we find major mechanisms through which resource reallocation is improved within clusters: (i) clusters facilitate higher entry rates and exit rates; and (ii) within clusters' environment the dispersion of individual firm's markup is significantly reduced, indicating intensified local competition within clusters. The identification issues are carefully addressed by instrumental variable (IV) regressions.

Keywords: Competition, Industrial Cluster, Productivity Growth, Resource reallocation

JEL Classification: D2, H7, L1, O1, R1, R3

Suggested Citation

Guo, Di and Jiang, Kun and Xu, Chenggang and Yang, Xiyi, Geographic Clustering and Resource Reallocation Across Firms in Chinese Industries (March 2020). CEPR Discussion Paper No. DP14506, Available at SSRN: https://ssrn.com/abstract=3560314

Di Guo (Contact Author)

Brunel University London ( email )

Kingston Lane
Uxbridge
United Kingdom, London Ub8 3PH
United Kingdom

HOME PAGE: http://https://www.brunel.ac.uk/people/di-guo

Kun Jiang

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Chenggang Xu

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Xiyi Yang

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

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