Impacts Of Agglomeration And Competition On The Factor Productivities Of Automobile Industry

Since the first automobile was born in Germany in1886, the auto industry inwestern countries has gone through a history of over100years and has marched intothe mature stage in the life cycle of industry. In contrast, the People’s Republic ofChina established a sound auto industry system at the very beginning of itsfoundation, but only until2001has its auto industry entered a new phase of rapiddevelopment. What should we learn from the successful experience of westerncountries? How to realize auto industry’s development in a leap-over fashion andhow narrow the gaps with developed countries so as to come to the forefront ofdevelopment in the industry are the key targets for government regulation andindustrial policies as well as the focus point for academic research. Among them,concerns of agglomeration and competition are given great attention.Based on previous research, this paper utilizes translog production function andinverse demand function to build the simultaneous-equations model, analyzing therelation between agglomeration and factor productivities using China’s auto industrydata from1997-2003, which breaks through the traditional structural approachrepresented by SCP and ES. Secondly, FIML in system estimation approach is usedin analyzing the agglomeration’s impacts on factor productivities of auto industry.Thirdly, by use of Panzar and Rosse model, this paper also tests the degree ofcompetition in the vehicle market and its effects on TFP using the data from theannual reports on16public listed vehicle manufacturers from2007-2010. The research result indicates that agglomeration economy has a significant positivecorrelation with TFP and labor productivity but a negative correlation with capitalproductivity. Another aspect, there’s negative correlation between the degree ofcompetition and TFP from2007-2010. In conclusion, agglomeration plays a positiverole of pushing the development of auto industry, but under certain circumstances,competition might have some negative effect on the development. Based onempirical analysis, this paper explores the unique features of China’s auto industrydevelopment, and argues that traditional mainstream economic theories may not beappropriate in explaining the reality of China’s development. Some policy advice isalso put forward corresponding to the results with an aim to benefit the long-term,stable and sound growth in the industry.