Local Protectionism and Regional Specialization: Evidence from China’s Industries

This paper uses a dynamic panel estimation method to investigate the determinants 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.