Association Analysis Of Manufacturing Industry Assembling And The Local Government Protectection Policy

The relationship between circulation cost and manufacturing agglomeration is a core problem in the spatial economic theory. In addition, the correlation analysis between the local government protection policy and the manufacturing agglomeration also gradually has been entered the scholar’s research view. Public choice theory based on "public rational decisions" provides a new perspective for us to study the local government protection policy. The purpose of this article is to reveal the relationship between manufacturing agglomeration and local government protection which is explained by the classical theory of space economics.In terms of theory, based on the analysis of the public choice theory framework, this paper analyses the local government’s protecting action deeply. What’s more, we use the spatial economic theory to integrate the mechanism of manufacturing agglomeration which is caused by local government protection policy (the change of circulation costs). In particular, the local government will take the government action to satisfy the local economy and the government and make local government official’s welfare reach the optimum under some local economic and political constraints. Local government’s protection policy will affect the cost of circulation and lead manufacturing firms which have scale effects to shift. During the process of shifting, manufacturing firms are self-reinforcing with local market effect and price effect. The results of the theoretical model calculation are that local government protection policy plays an important role in the process of manufacture space moving. Through calculating objective function by simple mathematical calculations, we find that local government protection policy is not favorable for the formation of manufacturing agglomeration.From the perspective of empirical analysis, this paper tries to use 1997-2012 provincial panel data to construct two indexes. One is the index which measures government protection based on the relative price differences. The other is the index which measures manufacturing agglomeration on the basis of output per capita. We also conduct empirical tests to simulation conclusion based on panel data. The empirical analysis shows that:(1) After eliminating foreign direct investment variables which are not significant, the local government protection maintains a significant negative relationship with spatial agglomeration of manufacturing industries. How to explain this phenomenon? This paper argues that the local government intervention in the economy reduces the Chinese market integration levels. (2) Through further empirical inspection, we also discover that the influence of the local government protection is different from the east region and the west. And Inhibition degree of Local government intervention policy on the eastern region of manufacturing agglomeration is bigger as well. Moreover, the industrial base and the industrial structure in the east are more developed than the west, and its corresponding economic freedom is also high. Therefore we believe that the more developed region is, the more economic freedom it will need.The conclusion of theoretical analysis and empirical test is that the result of local protection policy has the opposite of the intended effect, and industrial competitiveness is not to be improved by the protection of local government. The root of local protection policies is the current means of competition for seizing the economic interests. It abandoned the overall interests just for local self-interest. As a result, it will affect production and consumption. And it is difficult to establish the fair big national market and to enhance economic efficiency. Although local protection policy is favorable for the formation of local fiscal revenue and manufacturing agglomeration now, it tends to give a futile help in the long run.So this article suggests that local government intervention should be reduced both in central and peripheral regions and we can rely more on market forces. Lastly, the government should improve liberalization in its functions.