Firm employment growth in China: The role of marketization and regional economic factors

Very heterogeneous patterns of firm employment growth characterize the Chinese provinces, suggesting the existence of a relationship between these and regional factors. This empirical work explores this topic by providing novel evidence of the role played by regional institutional and regional factors in firm employment growth in China during the decade 1998–2007, an important period in the Chinese transition towards a market economy. The results show that controlling for the internal determinants of firm performance, the firms located in provinces converging faster towards a market economy, exhibiting relatively better patterns (in terms of agglomeration, endowment of human capital, innovation and environmental protection) tend to expand their employment relatively more. These findings confirm the existence of a macro–micro‐connection as to what firm heterogeneity is concerned, as they reveal a differential growth channel along the regional dimension. In particular, local progress in government–market relationships appears as the most relevant dimension of marketization process. Given the regionally decentralized institutional system in China and considering its process of transformation, these findings inform local authorities concerned with the promotion of regional employment.