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Product Substitutability and Productivity Distribution——Evidence from Chinese Manufacturing Industry
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TitleProduct Substitutability and Productivity Distribution——Evidence from Chinese Manufacturing Industry  
AuthorSun Puyang, Jiang Wei and Zhang Yan  
OrganizationNankai University; School of Economics;; 
Key WordsProduct Substitutability; Productivity Dispersion; Productivity Level; Misallocation 
AbstractProduct Substitutability might be important to affect productivity dispersion. Reducing productivity dispersion can improve firms’ average productivity and make industries’ efficient factor allocation come true. We propose a theory model and assumption of the effect about product substitutability on industry productivity dispersion on demand-side conditions. Upon Chinese manufacture firm-level panel data, we calculate more than 400 industries productivity dispersion to test the link between product substitutability and productivity dispersion. The result illustrates that intra-industry product substitutability exerts an appreciable impact on intra-industry resource allocation: Less substitutability can lead to productivity dispersion’s expansion and average industry productivity’s decrease, which can result in the deficiency of intra-industry resource allocation. On the contrary, high-substitutability industry should exhibit less productivity dispersion and higher average productivity levels, which can promote the efficiency of factor allocation. This result is always robust when we use three different indexes respectively on product substitutability and productivity dispersion, even after adding the control variables into the model such as sunk cost, marketization level, ownership and so on. 
Serial NumberWP507 
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