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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Trade and Product Market Policies in Upstream Sectors and Productivity in Downstream Sectors
Firm-Level Evidence from China
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- Maria Bas1, Orsetta Causa2
- Author Affiliations
- 1: CEPII, Paris, France
- 2: OECD, France
- 20 sep 2012
- Bibliographic information
This paper explores the productivity impact of trade, product market and financial market policies over the last decade in China – a fast growing country where, despite significant reform action, regulatory stance remains still far from OECD standards. The paper makes a critical distinction between downstream and upstream industries, focusing on the indirect effects of regulation in upstream industries on firm performance in downstream manufacturing industries. This framework allows investigating the link between these policies and productivity growth depending on how far incumbents are relative to the technological frontier. The analysis is novel in several respects. Drawing on new OECD policy indicators of sector-level product market regulation and firm level data, econometric estimates deliver new evidence on the potential gains from product and financial market reforms in China, two policy areas that had not been studied in previous empirical literature. Firm-level microeconomic data further allow shedding light on the differential effects of policies within industries, while also highlighting the potential channels through which productivity is affected by reform. The key conclusion that can be derived from the empirical analysis is that further product, trade and financial market reforms would bring substantial gains in China and could therefore speed up the convergence process. Taken at face value, the empirical estimates would imply that aligning product, trade and financial market regulation to the average level observed in OECD countries would bring aggregate manufacturing productivity gains of respectively 9%, 4% and 6.5% after five years. Trade and product market reforms are found to deliver stronger gains for firms that are closer to the industry-level technological frontier, while the reverse holds for financial market reforms.
- firm level data, financial liberalisation, trade liberalisation, productivity, product market reform, China
- Classification JEL:
- D24: Microeconomics / Production and Organizations / Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- F13: International Economics / Trade / Trade Policy; International Trade Organizations
- L8: Industrial Organization / Industry Studies: Services
- O1: Economic Development, Innovation, Technological Change, and Growth / Economic Development
- O5: Economic Development, Innovation, Technological Change, and Growth / Economywide Country Studies