Research On Impact Of Fragmented Market On Total Factor Productivity

At the beginning of the reform and opening up, serious market segmentation, which hinders the lateral movement of the factor resources and goods, has been formed among different areas. Fiscal decentralization and official promotion tournament is the main reason for the formation of market segmentation, that's why the central government have taken measures for many times to tackle it, but they have not fundamentally changed the basis of the formation for market segmentation, which has become one of the two big problems in China's economic development. Recent studies show that since 2006, the market segmentation has been gradually deteriorated. Though there are controversies on whether the domestic market are segmented or integrated, there exists consensus among the researchers that the beggar-thy-neighbor market segmentation has been a serious problem. That the market segmentation have great impacts on the export, industrial upgrading, economic growth,etc. has been researched and studied by many scholars, but there still lacks the literature concerning on the maker segmentation's impacts on the quality of the economic development---total factor productivity.We firstly retrospect and make comments on the relevant existed literature, and analyze the causes and trends for the local market segmentation, and factors influencing the total factor productivity. Then we construct a theoretical mechanism on how the segmentation influences the total factor productivity. The mechanism shows that market segmentation may hinder the improvement of the total factor productivity in the following four aspects, that is, reducing the factor allocation efficiency, limiting the market scale artificially, impairing the R&D inputs, and doing harm to industrial gathering. Finally, by using the panel data from 200 o to 2012 among 30 provinces, we calculate the index of market segmentation among these areas by using the relative price method, and the total factor productivity by using the Solow residual method. The empirical results shows that local market segmentation promote the development of the total factor productivity significantly by using the OLS quantitative method. However, there exists an endogenous problems between the market segmentation and total factor productivity, so the OLS result may be biased and inconsistent. In order to remit the endogenous problem, we use the difference GMM and system GMM. The estimated results indicates that market segmentation hinder the development of the total factor productivity significantly. On average, the local market segmentation arise 1%, the total factor productivity reduces 356%. However, the opening up eases this negative effects, which illustrates that the local government give up the scale economic effect by the market segmentation strategy, but using the scale economic effect of the foreign market.Besides, we also find that foreign trade significantly promote the total factor productivity owing to the competitive effect and scale effect. Foreign direct investment is not attributable to the improvement of the total factor productivity in that the FDI inflow in China's mainland are from Hong Kong, Macao, and Taiwan, but their technology spillover effects are not so big. Research and Development inputs also does not contribute to the rise of the total factor productivity due to the low using efficiency and unreasonable structure. On promoting the economic growth, the law of diminishing marginal returns of the factors exist, but improving the total factor productivity can benefit most. Therefore, under the new normal economy, promoting the total factor productivity can not only realize the transform of Chinese economic development mode, but also can guarantee the sustainable development and avoid the “Middle Income Trap”. Thus the central government should play a coordinating role, promote the total factor productivity by integrating the domestic market, and go on an intensive economic growth road.