A Unified National Market and Local Industrial Policy Competition

Abstract

This paper develops a quantitative spatial equilibrium model incorporating industrial subsidies, establishing an intrinsic linkage between the unified national market and local industrial policy competition. It quantitatively analyzes the impact of local industrial policy competition on real economic growth and other outcomes. The findings are as follows. Firstly, when the degree of market integration is low, local industrial policy competition is more conducive to economic growth and the improvement of aggregate welfare. When the degree of market integration is high, the central industrial policy proves to be superior. Among them, the reduction of trade costs is the main reason. The reduction of population mobility costs has little impact on industrial policy, but it is conducive to exerting the scale economy effect of the market, improving aggregate welfare, and reducing inter-regional income inequality. Secondly, under the unified national market, due to the scale economy effect, the market gradually plays a decisive role, while the subsidy effect decreases. Thirdly, the transfer payment from the central government does not play a role in regulating local industrial policy competition on the whole. In addition, transfer payment and industrial policy cooperation can both promote economic growth and contribute to coordinated regional development, which is conducive to achieving more efficient equity. Fourthly, local industrial policy cooperation has propelled economic growth through economies of scale and the deepening of the division of labor, but to further drive economic growth, it is necessary to make full and better use of the advantages of the super-large market . However, under the unified national market, top-down industrial policies are the most efficient. The analysis in this paper provides insights for understanding local industrial policy competition, promoting the construction of a unified national market, and better leveraging the roles of the market and the government.

Keywords

unified national market / local competition / industrial policy competition / quantitative spatial general equilibrium

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Higher Education Press