General Equilibrium Of Producer Services And Manufacturing Sectors With Empirical Evidence

Producer services sector provides services to other industries such as farming, manufacturing, and even within services sectors. Producer services include water, electricity and gas supply, transportation, telecommunication, finance, leasing and other business activities, and R&D. It is an industry that is of great impetus to manufacturing industry. Lots of academic researches were done by considering producer service as intermediary input. In our real world economy, the focus of local government has long been developing industry zones/parks, especially for those high end manufacturing industries. Accordingly, high end producer service which matches high end manufacturing industries has also been an equal focus. It is thus of theoretical and practical significance to comb the interactive relationship between producer service and manufacturing industry.In previous studies, although the theoretical framework may vary, the study of producer service stems from factor endowments, vertical integration, and global value chain theories. Many a researcher assumed producer service to be an outsourcing result, that is, manufacturing companies outsource some of the functions to producer services. Thus producer service enters the production function of manufacturing industry as intermediary input. The general equilibrium between producer service and manufacturing industry is subjected to cost of labor, asymmetric information. In those empirical studies, most were concerned about industry agglomeration, improvement of productivities, and spatial distributions. Few studied the contribution of market structure of producer service industry, flow of factors, and asymmetric information. Little was done on the qualitative case study on producer service.Therefore, in the paper, the author attempts to study the general equilibrium considering market structure and asymmetric information by separating the general equilibrium into product level and factor level. The study discovered that as market structure grows more competitive, the price of producer service will be closer to its cost. Whereas the variety of service leads to greater capability to integrate a packaged service, which means, higher price. Asymmetric information, together with marginal income of factor, determines the distribution of factors. In the empirical study, this paper conducted case study of property insurance in China, a perfect example that proves the theory true, then the paper applied panel data analysis of 31 Chinese provinces from 2003 to 2012. The result shows that high end producer supports developed areas more and traditional producer service supports developing areas more.