Circulation Cost,Manufacturing Industrial Agglomeration And Local Protectionism

The impact of circulation costs on the spatial agglomeration of manufacturing is a classical issue in spatial economics, and China interregional trade and local government protectionism is also a research hotspot.Existing studies mainly explain the microeconomic phenomenas in commdity circulation by ordinary analtsis methods.based on the "trading network externalities".However,two-sided market theory provides new modeling microscopic for circulation study,and the innovation of this paper is proposing a feasible analytical framework for theoretical and empirical study.The paper integrates the mechanism that how the circulation the impacts the process of industrialization. Specifically, Manufacturing firms and regional consumers interact as the supply-demand analysis shows, forward.and backward linkage、market potenital effect and life cost effect are the descriptions of participants’behaviors.onthis paper integrates the "Two-sided market" theory and the "center -periphery"spatial model, and visually illustrate the effects of circulation cost changes on manufacturing spatial agglomeration based on the simulation method.The circulation industry is the equivalent of the "Walrasian auctioneer"between the supply and demand, communicating the information.Theoretical analysis and model deduction shows, circulation industry plays the role of information transfering in the manufacturing chain by its own "network externalities"mechanism and directly affects the spatial spillover strength of industrial agglomeration: the rise of circulation costs will reduce the local Manufacturers and consumers’welfare level in the circulation net, the following outflow of production factors make the regional manufacturing industry goes peripheralized. Simulation results also show that in the short term,the policy rent formed by trade protectionism policies may attract manufacturing firms’investments, but such kind of agglomeration is not sustainable in the long term.Based on the results of theoretical analysis, empirical analysis of this paper uses the1996-2010panel data constructing an inter-provincial circulation cost index based on a relative price method and empirically tests the simulation conclusions.The resultsa are as follows:(1) Sub-regional data shows that the national inter-provincial circulation costs gap is increasing after a period of decreasing, the domestic commodity market has turned to segmentation rather than integration.The turning point of the domestic integration trend is around2008, when macroeconomic fluctuations caused the rise of trade protectionism.(2) Further empirical test shows that after controlling the price variable and transport conditions variable, market segmentation index and space overflow variable remain significantly positive impact on regional manufacturing agglomeration levels.Currently manufacturing spatial spillover and inter-provincial market segmentation coexist in China.The contradiction may reflacts that the spatial spillover may result from the interregional championship.And such kind of competition distorted local governments’behavior and led to the polity prisoner’s dilemma.(3)The regional circulation costs and the manufacturing agglomeration share a inverted U-shaped relationship:in the short term, a protectionist policy indeed promotes regional industrial development.,We believe the economy reality concluded by empirical tests reveals the local government protectionism during the China’s manufacturing industry transformation and upgrading.Theoretical and empirical tests conclud that local governments adopt protectionism policies may be beneficial in the short term, but it’s difficult to maintain long-term agglomeration advantages.Local governments should change its functions, reducing direct intervention in economic affairs, and focusing more on constracting suitable environment and helping the private firms.