Productivity as if Space Mattered: An Application to Factor Markets Across China

Wenya Cheng, John Morrow and Kitjawat Tacharoen

No 4494, CESifo Working Paper Series from CESifo

Abstract: Although firms may face radically different production conditions, this dimension of firm heterogeneity is often overlooked. We model input demand across local factor markets, explicitly considering search costs which explain why firms care about both the price and availability of inputs. The model is estimated by combining firm and population census data. The results quantify the role of regional factor markets in firm productivity and location. Considering modern China as a large country with substantial regional variation, we find within industry interquartile labor costs vary by 30-80%, leading to 2-17% interquartile differences in TFP. These estimates imply that in general equilibrium, homogenization of labor markets would lead to a 1.63% increase in real income. Furthermore, favorably endowed regions attract more economic activity, providing new insights into within-country comparative advantage and specialization.

Keywords: general equilibrium; factor endowments; structural estimation; productivity (search for similar items in EconPapers)
JEL-codes: D50 F10 J30 O10 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Productivity As If Space Mattered: An Application to Factor Markets Across China (2013)
Working Paper: Productivity As If Space Mattered: An Application to Factor Markets Across China (2013)
Working Paper: Productivity As If Space Mattered: An Application to Factor Markets Across China (2012)
Working Paper: Productivity as if space mattered: an application to factor markets across China (2012)
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