The Domestic Market Integration、External Economic Shocks And Total Factor Productivity

Many scholars give the persuasive explanation of "China’s economic miracle" from the perspective of separation. Local government competition and relative performance evaluation system propelled the rapid growth of China’s economy in the last thirty years. Today most regional economic community chooses to relate much closer by integrate market. China, as the world’s second largest economies, is facing the risk of non-integration due to local government competition. Intensifying competition between local governments will lead to regional market segmentation. Market segmentation can limit the range of products and services on certain markets. Thereby it would restrict the level of division of labor and specialization, causing the imbalance of industrial structure and the distortion of the allocation of resources. This segment will definitely harm the long-term technological progress.From another point of view, if we take domestic market integration as an internal opening, worldwide economic shocks will form a kind of external shocks on China’s economy. In earlier study about the internal and external opening and total factor productivity, only few of them take the external economic environment’s influence on the total factor productivity into account. Based on this, this paper take the fluctuation in process of internal and external opening as the breakthrough point. This paper will keen on the domestic market integration and the external economic shocks on the total factor productivity. This paper is trying to parse the following two core issues:1, how domestic market integration and external economic shocks effect on the total factor productivity?2, what’s the mechanism of this effect?By reviewing related study, this paper aim to measure how China’s domestic market integration and external economic shocks affect the total factor productivity. Some theoretical hypotheses are proposed in this paper what may help with this research. Based on panel data of Chinese28provinces during1985-2012, we carry on the empirical test of the impact on total factor productivity. The content of this paper is arranged as following:The first chapter is introduction. The second chapter reviews the related study of domestic market integration, external economic shocks and the total factor productivity both in theoretical and empirical analysis. The third chapter to fifth chapter aim to answer the two core problems by model building, data collection and empirical analysis. These chapters explore the impact mechanism of total factor productivity. The last chapter is conclusion, which also points out the deficiencies of this paper and the direction of further research.The main research conclusions are as follows:Firstly, based on Malmquist productivity index, this paper calculate the total factor productivity and find the national and regional total factor were improved during the last30years. This paper also calculate the domestic commodity market integration by relative price method, what’s more, it also calculates the impact of external economic shocks on domestic economy by principal component analysis.Secondly, the empirical study found that the domestic market integration and external economic shocks are both the important influence factors of total factor productivity in recent years. The domestic market integration has significantly positive effect on the total factor productivity improvement. The external economic shock has significantly negative effect on the total factor productivity improvement. Both of them have lagged effect.Thirdly, external economic shocks not only directly affect the total factor productivity through trade, capital, financial transmission channels and expected changes, and will also affect the domestic market integration as indirect ways.Fourthly, in the view of the positive and negative influence on the total factor productivity, in order to transferring the economic growth model and improving the technical level, China should be balanced to accelerate regional market integration and prevent serious impact of the external economy. Under the negative impact of the external economic shocks, the existing export-led development model will face more external risk, which also will be increasingly constrained by the external market. China must keen on domestic market in the near future, this requires breaking region market segmentation, accelerating the process of internal market integration, establishing an unified domestic market, advancing the free flow of factor market (such as technology, market, intermediate product market, etc.), encouraging cooperation and exchanges between enterprises in different regions and promoting the diffusion of knowledge and technology.Compared with the existing study, the contribution of this paper is mainly are three aspects:Firstly, this paper put domestic market integration, external economic shocks and total factor productivity into one framework to analysis. Secondly, this paper fixes the existing external economic shock index, which can value the fluctuation of real economy. Thirdly, this paper also consider the variable transmission lag, put the future impact on the total factor productivity into empirical test, the result shows the internal market integration and the impact of external economic shocks impact to the total factor productivity not only exist in sight, there is also a period in the future.