Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89773
Authors: 
Cheng, Wenya
Morrow, John
Tacharoen, Kitjawat
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4494
Abstract: 
Although firms may face radically different production conditions, this dimension of firm heterogeneity is often overlooked. We model input demand across local factor markets, explicitly considering search costs which explain why firms care about both the price and availability of inputs. The model is estimated by combining firm and population census data. The results quantify the role of regional factor markets in firm productivity and location. Considering modern China as a large country with substantial regional variation, we find within industry interquartile labor costs vary by 30-80%, leading to 2-17% interquartile differences in TFP. These estimates imply that in general equilibrium, homogenization of labor markets would lead to a 1.63% increase in real income. Furthermore, favorably endowed regions attract more economic activity, providing new insights into within-country comparative advantage and specialization.
Subjects: 
general equilibrium
factor endowments
structural estimation
productivity
JEL: 
D50
F10
J30
O10
Document Type: 
Working Paper

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