The impact of city-county merger on firm-level total factor productivity—Evidence from China

Sisi Yin, Zuyi Shen and Yunshu Gao

PLOS ONE, 2024, vol. 19, issue 9, 1-25

Abstract: This study examines the potential negative effects of city-county mergers on firm-level total factor productivity (TFP). A theoretical framework is established to explain how city-county mergers could lead to higher institutional and non-institutional costs, thus influencing government decision-making and resource allocation. As a result, firms operating in the economy will absorb these costs and adjust their behavior accordingly. By employing Chinese firm-level data in a difference-in-differences approach, this study finds a statistically significant negative effect of transitioning county-level cities into municipal districts (TCD) on firm-level productivity. Additionally, this study identifies the financial situation of reformed governments and the internal environment of firms as two mechanisms through which the TCD reform influences firm-level productivity.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0304129

DOI: 10.1371/journal.pone.0304129

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