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An Application of the M elitz Model to C hinese Firms
Author(s) -
Sun Churen,
Tian Guoqiang,
Zhang Tao
Publication year - 2013
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12045
Subject(s) - productivity , elasticity of substitution , distribution (mathematics) , economics , substitution (logic) , econometrics , convergence (economics) , elasticity (physics) , industrial organization , microeconomics , production (economics) , mathematics , computer science , macroeconomics , programming language , mathematical analysis , materials science , composite material
When the M elitz model is implemented in practice, the industrial productivity distribution is often assumed to be of P areto form. In this case, a fundamental relationship κ > σ − 1 must hold to guarantee the convergence of the industrial average productivity, where κ is the concentration degree of the industrial productivity P areto distribution and σ is the substitution elasticity across varieties in the industry. This paper estimates the concentration degrees of the P areto distribution in industrial productivity and industrial substitution elasticities using firm‐level data of 40 C hinese manufacturing industries between 1998 and 2007. However, the paper shows that the above fundamental assumption κ > σ − 1 does not hold for nearly all the industries for C hinese firm‐level data. An explanation is proposed as a result of the distorted firm size and productivity for C hinese characteristics.