In:
American Economic Journal: Economic Policy, American Economic Association, Vol. 13, No. 4 ( 2021-11-01), p. 112-151
Abstract:
This study documents the presence of local protectionism and quantifies its impacts on market competition and social welfare in the context of China’s automobile market. A salient feature of China’s auto market is that vehicle models by joint ventures and state-owned enterprises command much higher market shares in their headquarter provinces than at the national level. Through county border analysis, falsification tests, and a consumer survey, we uncover protectionist policies such as subsidies to local brands as the primary contributing factor to the observed home bias. We then set up and estimate a market equilibrium model to quantify the impact of local protection, controlling for other demand and supply factors. Counterfactual analysis shows that local protection leads to significant consumer choice distortions and results in 21.9 billion yuan of consumer welfare loss, amounting to 41 percent of total subsidy. Provincial governments face a prisoner’s dilemma: local protection reduces aggregate social welfare, but provincial governments have no incentive to unilaterally remove local protection. (JEL L24, L32, L62, O14, O18, P25, R12)
Type of Medium:
Online Resource
ISSN:
1945-7731
,
1945-774X
DOI:
10.1257/pol.20180513
Language:
English
Publisher:
American Economic Association
Publication Date:
2021
detail.hit.zdb_id:
2442382-8
detail.hit.zdb_id:
2452647-2
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