Firm Dynamics and Regional Inequality of Productivity in China

Canfei He and Yi Zhou

No 1527, Papers in Evolutionary Economic Geography (PEEG) from Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography

Abstract: Industrial change processes are underlying forces that determine the change of regional productivity. In developed market economies, less productive firms are more likely to exit while productive firms have more chance to enter and to survive. As a result, spatial inequality of firm dynamics will directly influence the inequality of regional productivity. This study investigates how firm dynamics would affect regional productivity using firm level data during 1998-2007 in China. We first estimate total factor productivity (TFP) for each firm based on the semi-parametric method proposed by Olley and Pakes (1996). Regional productivity is derived by weighing the firm TFP using gross industrial output. There is considerable spatial inequality of TFP paired with a trend of convergence over the time period of 1999-2007. Decomposition of TFP growth shows that firm entry, exit and survival do contribute to TFP change and their contributions vary across prefectures substantially. The between share holds the largest regional difference, as the most important factor contributing to the spatial inequality of regional TFP. The restructuring of SOEs has critically contributed to the spatial inequality of TFP by raising TFP in the traditional industrial bases and by facilitating the development of productive private and foreign sectors particularly in the coastal region. The finding indicates that resource reallocation across firms with different ownerships is the key mechanism to improve regional productivity.

Keywords: Firm Dynamics; Regional Inequality; TFP; Decomposition Method; China (search for similar items in EconPapers)
Date: 2015-09, Revised 2015-09
New Economics Papers: this item is included in nep-bec, nep-cna, nep-eff, nep-geo, nep-tid, nep-tra and nep-ure
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:egu:wpaper:1527

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