PROGRESS IN GEOGRAPHY ›› 2016, Vol. 35 ›› Issue (3): 349-357.doi: 10.18306/dlkxjz.2016.03.009

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Interdependencies in the dynamics of regional firm entry and exit in China

Yunxiong LI1(), Yonghuan REN1, Canfei HE2,*()   

  1. 1. College of Urban Planning and Design, Peking University, Shenzhen 518055, Guangdong, China
    2. College of Urban and Environmental Science, Peking University, Beijing 100871, China
  • Received:2015-07-01 Accepted:2015-09-01 Online:2016-03-25 Published:2016-03-25
  • Contact: Canfei HE E-mail:liyunxiong820@126.com;hecanfei@urban.pku.edu.cn
  • Supported by:
    National Science Fund for Distinguished Young Scholars, No.41425001;National Natural Science Foundation of China, No.41271130

Abstract:

This article investigates the interdependence mechanism between firm entry and exit, which can be categorized into multiplier and competition effects. First, we present the evolutionary process of the spatial distribution of manufacturing enterprises from 1998 to 2013 that indicates the spatiotemporal trend of industry dynamics. The spatial pattern has experienced dramatic changes, demonstrating an agglomeration tendency of same types of enterprises. Using difference-GMM model we conducted a regression analysis on a dynamic panel to test how regional entry and exit rates are affected by previous exit and entry rates. We found different influences of previous exit and entry. Entry rates are determined by competition effect while exit rates are determined by multiplier effect. The impact on entry is delivered immediately and decreases monotonically. However, a delayed effect exists in the impact on exit, which reaches the peak after two years. Further, we found different interdependence relationships in different regions. Competition effect is more intense in eastern coastal cities. In the eastern area, higher exit rate leads to more entries in the next stage, which proves that firm exit is a market action optimizing resource allocation while a higher entry rate will restrain future entry due to the high industry saturation. On the other hand, in the western area where industrial development is only beginning, a certain amount of exits will aggravate the exit rate in the next stage. Finally, the article examines policy implications of the interdependence dynamics. Regions under different economy background should adopt different policies to realize the sustainable development of industries. The eastern areas should set industry entry threshold criteria and lower exit barriers of inefficient enterprises. These actions can facilitate the working of market mechanism and result in creative destruction to promote industrial restructuring and upgrading. The western area should adopt the policy to attract more entries and protect existing firms in order to prevent a butterfly effect of enterprise exit.

Key words: manufacturing enterprises above designated size, multiplier effect, competition effect, difference-GMM, dynamic panel, firm entry and exit, China