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Title: Growing through Competition: The Reduction of Entry Barriers among Chinese Manufacturing Firms

Author(s): Helu Jiang, Yu Zheng and Lijun Zhu

Publication Date: February 2021

Keyword(s): Endogenous Growth, Entry Barriers, Firm Dynamics and Firm entry

Programme Area(s): Development Economics and Macroeconomics and Growth

Abstract: Exploiting the gradualism of the Chinese economic reforms and cross-sectional variations in entry rates, we show empirical evidence from firm-level data that industries with higher entry rates achieve higher growth and a more competitive market structure in subsequent years. We then embed firm entry into a model of endogenous productivity and market structure with heterogeneous firms and sectors, and calibrate it to the Chinese manufacturing sector in 2004-7. We find the positive impact of entry on growth is achieved primarily through a pro-competitive effect, whereby entry induces endogenously a larger fraction of industries to be more competitive in the economy. We quantify the contribution on growth from the reduction of entry barriers associated with the state-owned enterprise reforms in the late 1990s and early 2000s and find it explains 20% of the aggregate growth of the manufacturing sector from 2004-7. More generally, we highlight the critical role of reducing entry barriers in promoting competition and growth in developing countries.

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Bibliographic Reference

Jiang, H, Zheng, Y and Zhu, L. 2021. 'Growing through Competition: The Reduction of Entry Barriers among Chinese Manufacturing Firms'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15763