New Economic Geography and Tax Competition in the PRC: A Firm-Level Data Analysis with Policy Implications

Date: January 2012
Type: Papers and Briefs
Series: Economics Working Papers
ISSN: 1655-5252 (print)
Author: Lee, Minsoo


Minsoo Lee analyzes the spatial determinants of new foreign and domestic enterprises in the export industry of the People’s Republic of China (PRC) by applying new economic geography of agglomeration theory, tax competition theory by resource flow model, and comparative advantage analysis. He finds that agglomeration plays a greater role for foreign investors specializing in the processing goods trade and highly skillintensive or research and development-intensive production, and that benefits from reduction in the value added tax rate and corporate income tax rate play an evident role for foreign investors and Hong Kong, China and Taipei,China investors in the processing trade sector. As the PRC moves up the high-value supply chain and transforms the “internationalization” process through attraction of foreign investment toward “localization” by reducing the processing goods trading portion and increasing the supply of domestically produced intermediate inputs for their exports, processing goods traders may consider new locations or business models.


  • Abstract
  • Introduction
  • Theory and Institutional Background
  • Models and Methodology
  • Data
  • Empirical Results
  • Policy Implications
  • Conclusion
  • References