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Factor Market Distortions and the Upgrading of Industrial Structure: Mechanisms and Evidence
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TitleFactor Market Distortions and the Upgrading of Industrial Structure: Mechanisms and Evidence  
AuthorDai Kuizao and Liu Youjin  
OrganizationZhejiang University of Finance & Economics; Hunan University of Science and Technology; 
Key WordsFactor Market Distortion; Upgrading of Industrial Structure; Transmission Mechanism 
AbstractHow does the factor market distortion (FMD) affect on the upgrading of industrial structure (UIS)? This paper makes an empirical analysis by using the provincial panel data from 1993 to 2015 of China. It finds that FMD play a significant suppression effect on UIS. The results, based on the test of mediating effect, show that FMD affects on UIS through four ways such as the misplaced effect of resources, the effect of inhibiting R&D, and the effect of human capital. This effect is gradually weakening with FMD continuing to improve after joining the WTO and after the financial crisis. Moreover, the suppression effect on the eastern coastal areas, which have the advantages such as the resource endowment, is relatively weak. Furthermore, it shows that the effect and mechanism of the labor market distortions and the capital market distortions and the technology market distortions on UIS are different. This paper deepens the understanding of the causes of China’s industry being in the middle-and-low-end of Global Value Chains (GVCs) and big-but-no-strong, from the perspective of FMD. Moreover, it provides useful references and important policy implications for promoting industry step into the middle-and-high-end of GVCs and deepening the structural reform of supply-side. 
Serial NumberWP1426 
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