State and market integration in China: A spatial econometrics approach to 'local protectionism'

Carsten Herrmann-Pillath, Alexander Libman and Yu Xiaofan

No 137, Frankfurt School - Working Paper Series from Frankfurt School of Finance and Management

Abstract: In the past two decades, controversial evidence has been produced supporting the case for local protectionism in China. This paper overviews the most important contributions and presents a new approach which applies spatial econometrics on prefectural-level data. The main advantage of this method is to rely on a theoretically less biased and internal benchmark for assessing the impact of provincial borders on spatial interdependences, as we compare within province and across province growth spillovers for neighbouring prefectures. We show that provincial borders exert a strong impact on spillovers. Further, we also analyze spillovers of local public expenditures, which could be interpreted as proxies for government interventions. Again, provincial borders matter. Yet, we are cautious in interpreting this as evidence for local protectionism, and propose the notion of 'cellularity' as an alternative explanation. Cellularity results from a confluence of different factors, such as administrative structure, institutional changes and regional culture.

Keywords: Domestic market integration in China: local protectionism; spatial econometrics; growth spillovers; expenditure spillovers; cellularity (search for similar items in EconPapers)
JEL-codes: H7 O18 P23 P26 R11 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (44)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fsfmwp:137

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