The growth of firms, markets and rents: Evidence from China

• Published in: Journal of Comparative Economics 2024-06, Vol.52 (2), p.383-399
• Main Authors: Berkowitz, Daniel, Nishioka, Shuichiro
• Format: Article
• Language: English
• Subjects: Market expansion; Markups; Net entry; Profit shares; Trade liberalization in China
• ISSN: 0147-5967; 1095-7227
• DOI: 10.1016/j.jce.2023.12.006

The evidence for whether China become more competitive following its accession to the World Trade Organization (WTO) is mixed. Using recent methods for estimating markups and profit shares, this paper documents that Chinese manufacturing firms on average collected more rents after the accession because the rate of net entry of firms lagged the rapid growth of the domestic market. While the selection on large productive firms drove the rise in the aggregate markups in the United States (De Loecker et al., 2020), these competitive forces played a secondary role in China. •The evidence for whether China become more competitive following its accession to the World Trade Organization (WTO) is mixed.•Using recent methods for estimating markups and profit shares, this paper documents that Chinese manufacturing firms on average collected more rents after the accession.•We show that this occurs because the rate of net entry of firms lagged the rapid growth of the domestic market.•While the selection on large productive firms drove the rise in the aggregate markups in the United States (De Loecker et al., 2020), these competitive forces played a secondary role in China.•The evidence indicates that competition failed to emerge in China’s domestic market following the accession to the WTO.