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THE WILLIAM DAVIDSON INSTITUTE
AT THE UNIVERSITY OF MICHIGAN BUSINESS SCHOOL
Local Protectionism and Regional Specialization:
Evidence from China’s Industries
By: Chong-En Bai, Yingjuan Du, Zhigang Tao, and Sarah Y. Tong
William Davidson Working Paper Number 565
May 2003
Local Protectionism and Regional Specialization:
Evidence from China’s Industries∗
† ‡ §
Chong-En Bai, Yingjuan Du, Zhigang Tao, and Sarah Y. Tong
April 2003
Abstract
This paper uses a dynamic panel estimation method to investigate the determi-
nants of regional specialization in China’s industries, paying particular attention
to local protectionism. Less geographic concentration is found in industries where
the past tax-plus-profit margins and the shares of state ownership are high, re-
flecting stronger local government protection of these industries. The evidence
also supports the scale-economies theory of regional specialization. Finally, the
overall time trend of regional specialization of China’s industries is found to have
reversed an early drop in the mid 1980s, and registered a significant increase in
the later years.
Key Words: local protectionism, regional specialization, scale economy, external
economy.
JEL Classifi cation Number: F1, R12, P2
∗We are grateful to James E. Rauch and two anonymous referees for their valuable suggestions, to
Songnian Chen, David D. Li, Barry Naughton, Ivan Png, Shang-Jin Wei, Richard Wong, Lijing Zhu,
and participants of the 2003 AEA annual meetings f
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