Abstract
Abstract This study examines the effects of China’s industrial clusters on regional economic growth and urban–rural income inequality within a region. A density-based index (DBI) is developed to capture the unique features of cluster development in China. From a county-level DBI panel data constructed based on firm- and county-level datasets, we find that clusters enhance local economic growth substantially. Moreover, the existence of entrepreneurial clusters (clusters mainly consist of nonstate-owned firms) helps to reduce local urban–rural income inequality by increasing the income of local rural residents. We also find that the clustering effects on growth and reduction of inequality are less significant in more urbanized regions or megacities. Identification issues are carefully addressed by deploying two-stage estimations with instrumental variables and Granger test.
Highlights
China’s economic reform have transformed the world’s largest developing country from one of the poorest countries in the world into a major power, while simultaneously reducing poverty within two decades at a scale unparalleled in world history (World Bank, 2013)
Identification concerns are addressed by two-stage Hackman estimations and propensity score matching (PSM) approach
Complement to but different from this literature, realizing the institutional constraints, including labor mobility, capital restrictions and others, we focus on entrepreneurial industrial clusters and their impacts on growth and inequality, as compared with the impacts of state industrial clusters
Summary
China’s economic reform have transformed the world’s largest developing country from one of the poorest countries in the world into a major power, while simultaneously reducing poverty within two decades at a scale unparalleled in world history (World Bank, 2013). We find that clustering enhances regional economic and employment growth, whereas reduces local rural-urban inequality. Rural-urban income inequality within the counties, which have clusters consisting of a more developed non-state sector, is substantially lower than in other counties. A better institution, i.e. better protection of private property rights, promotes development and at the same time reduces inequality; and vice versa (Acemoglu et al, 2002, 2005; Engermann and Sokoloff, 1997, 2000; Easterly, 2007) Complement to this literature, we find entrepreneurial industrial clusters push forward economic development more and reduce local inequality. Complement to but different from this literature, realizing the institutional constraints, including labor mobility, capital restrictions and others, we focus on entrepreneurial industrial clusters and their impacts on growth and inequality, as compared with the impacts of state industrial clusters.
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