WTO Accession, Foreign Bank Entry, and the Productivity of Chinese Manufacturing Firms

Tat-kei Lai, Zhenjie Qian, Luhang Wang

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

After China’s accession to the World Trade Organization (WTO) in December 2001, foreign banks are allowed to enter the Chinese banking market in phases. Using firm-level data from the National Bureau of Statistics of China which cover all state-owned and non state-owned manufacturing firms with sales over 5 million RMB, we examine the relationship between foreign bank entry and the industry-level productivity growth of China’s manufacturing sector. Our empirical results suggest that (a) on average, opening up a region for foreign bank entry has no impact on aggregate productivity growth, (b) however, industries more dependent on external finance grow faster after a region is opened up for foreign bank entry, and (c) these results are due to changes in technical efficiency rather than reallocation. Overall, this paper provides new evidence on the relationship between banking market structure and manufacturing productivity in a fast growing developing country.
Original languageEnglish
JournalJournal of Comparative Economics
Volume44
Issue number2
Pages (from-to)326–342
Number of pages17
ISSN0147-5967
DOIs
Publication statusPublished - 2016

Keywords

  • China
  • Foreign bank entry
  • WTO
  • TFP
  • Technical efficiency
  • Reallocation

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