Papers in Evolutionary Economic Geography

July 15, 2015

# 15.20 Regional Industrial Evolution in China: Path Dependence or Path Creation?

Canfei He, Yan Yan and David Rigby

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The evolutionary economic geography indicates that regional industrial development is path dependent. The path dependence approach however ignores the external factors, which may create new paths of regional development. Moreover, it does not pay much attention to the role of institutions. Both external factors and institutions are crucial to understand the regional industrial evolution in China. Based on firm level data of Chinese manufacturing industries during 1998-2008, this study examined the industrial evolution through the lens of entry and exit of four digit industries at the Chinese prefectures. Using a measure of co-occurrence based technological relatedness, we apply a logit model to link industry entry and exit to technological relatedness. We find significant evidence that regions branch into new industries which are technologically related to the existing industries and related industries are less likely to exit. Related globalization also encourages the entry of new related industries and discourages the exit of related industries. Further analysis reveals that economic transition has created favorable conditions to allow a larger role of technological relatedness. New industries are more likely to enter regions which are globalized, liberalized and fiscally independent, indicating that economic transition has also generated opportunities for Chinese regions to create new paths of industrial development.

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