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This project makes substantial contributions to the literature
on economic growth and inequality, new economic geography:
industrial clusters, and Chinese institutions. |
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Prof Chenggang XU |
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Dr Kun JIANG |
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One of the most important engines that has been driving China’s
growth over the past three decades is the industrial clusters in
which thousands of specialized small towns have developed into
"world factories". Yet, during the same period of time, income
inequality in China has worsened rapidly and China has become
one of the most unequal economies in the world. Is, as suggested
by Simon Kuznets six decades ago, the tradeoff between growth
and equality unavoidable at the early stage of economic
development? This is the first study in the literature to systematically
examine the effects of China’s industrial clusters on local economic
growth and inequality at the firm-county level.
The leading indices of economic clusters developed in the new
economic geography literature and economic development
literature capture the features of market economies well, where
labor and capital are mobile, and land is freely traded in the market.
Thus, industrialization and urbanization correspond to each other.
Under the assumption of perfect mobility of factors, industrial
agglomeration is an equilibrium outcome of firms’ co-location
decisions.
However, these factors were
completely controlled by the
government at the onset of
reform in China, and thus there
was no free mobility. Although
the institutional restriction on
factor mobility has been
reduced gradually over the past
few decades, the remaining
restrictions are still substantial.
As a result, the leading indices
of economic clusters developed
in the literature are not
applicable for China. Indeed, as
a consequence of the institutional constraints, much of China’s
industrialization process has been implemented in rural areas in
the absence of urbanization through township and village
enterprises or rural industries. Consequently, a substantial
proportion of entrepreneurial industrial firms in China are clustered
in officially defined rural towns. Through a series of field work trips,
we have visited a large number of industrial clusters, firms within
those clusters, and the townships and counties in which the clusters
are located. During the field work, we have interviewed hundreds
of entrepreneurs and local officials. |
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