DP12543 Clustering, Growth, and Inequality in China

Author(s): Di Guo, Kun Jiang, Chenggang Xu, Xiyi Yang
Publication Date: December 2017
Keyword(s): China, clustering, Geography, growth and inequality, institutions
JEL(s): D2, H7, O1, R1, R3
Programme Areas: Industrial Organization, International Trade and Regional Economics, Development Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12543

This study examines the effects of China's industrial clusters on its economic growth and urban-rural income inequality. A density-based index (DBI) is developed to capture the unique features of such clusters in China. From a county-level DBI panel data constructed based on firm-level and county-level datasets, we find that strong clusters and entrepreneurial clusters substantially enhance economic growth. Moreover, entrepreneurial clusters reduce urban-rural income inequality by increasing the income of rural residents. Identification issues are carefully addressed by deploying an instrumental variable approach.