Interregional Market Fragmentation And Interregional Trade Protection In The Open Economy

Empirical studies have shown that the regional markets in China are highly fragmented. With China’s further opening up to the outside world, the interregional market fragmentation and interregional trade protection not only distort resource allocation and hinder the formation of a unified domestic market, but also obstruct the built of open economy system.Based on the open economy backgrounds, this paper constructed the enterprise spontaneous model and the two-stage interregional trade protection model, and the results showed that the domestic fiscal decentralization, together with high external trade protection, cause interregional protection, and central government policies played the key role in the whole process. The further research found that pointed out that the further external trade liberalization will help reduce interregional trade barriers. The reduction level of interregional trade barriers depends on regional comparative advantage and industry cost structure.The empirical parts select Retail Price Index Data to measure sub-regional market fragmentation index respectively, and concluded that domestic markets in China tend to integration as a whole. The areas with comparative advantages have shown a higher level of interregional trade fragmentation but more obvious consolidation trends. Using this index as the dependent variable, this paper finds that the opening up to the outside world, regional fiscal expenditure structure and regional occupational pattern affect interregional market fragmentation differently. Among them the opening up to the outside world has a nonlinear effect onto the interregional market fragmentation. It aggravates interregional market fragmentation when there is a low degree of economic openness but a further improvement of economic openness will promote interregional market integration.