Growing Through Competition: The Reduction of Entry Barriers in Chinese Manufacturing

71 Pages Posted: 12 Feb 2021 Last revised: 9 Nov 2021

See all articles by Helu Jiang

Helu Jiang

Shanghai University of Finance and Economics

Yu Zheng

Queen Mary University of London

Lijun Zhu

Peking University

Date Written: February 2021

Abstract

Using the World Bank's Starting a Business score as a measure of administrative and regulatory entry barriers, we show evidence from the firm-level data of the Chinese manufacturing sector that regions with lower entry barriers experience higher productivity growth and more competition. We interpret these facts through the lens of a model of endogenous productivity and endogenous market structure with ex-ante heterogeneous firms and assess that about 32% of the productivity growth in the Chinese manufacturing sector in 2005-9 is contributed by increased entry following the reduction of those entry barriers. Moreover, 40% of the gain in growth is driven by improving the type distribution of incumbent firms (a replacement effect) and 60% of the gain in growth is driven by fiercer market competition (a new pro-competitive effect).

Keywords: Endogenous Growth, Entry Barriers, Firm Dynamics, Firm entry

JEL Classification: D22, D43, O11, O30, O47

Suggested Citation

Jiang, Helu and Zheng, Yu and Zhu, Lijun, Growing Through Competition: The Reduction of Entry Barriers in Chinese Manufacturing (February 2021). Available at SSRN: https://ssrn.com/abstract=3783989

Helu Jiang (Contact Author)

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Yu Zheng

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Lijun Zhu

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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