A Fragmented China

Abstract

This paper studies the degree of integration of China's domestic market and investigates the determinants of inter-provincial trade barriers under the rubric endogenous trade policy theory. I rely on industry-level trade flows extracted from provincial input-output tables to develop a model that analyzes the magnitude and evolution of Chinese provinces' engagement in domestic trade by computing all-inclusive indicators of trade barriers. Results underline that over the 1990s, not only was China's domestic market fragmentation along provincial borders great, but it also has become more severe at least between 1992 and 1997. The investigation of province-level and industry-level trade barriers confirms the relevance of applying the framework of endogenous protection to explain the level of impediments to trade between Chinese provinces. Findings emphasize that provinces' domestic trade protection pursues a dual objective of socioeconomic stability preservation and fiscal revenues maximization.

Keywords: International Economics, Economic Orders, Economic Integration and Globalization, General, Country and Industry Studies of Trade, Economic Integration, Economy-wide Country Studies, Europe, Regional Governmental Analysis, Regional Development Policy

JEL Classification: FO2, F14, F15, 052, R58