The Growth of Firms, Markets and Rents: Evidence from China

During 1995-2007, China enacted reforms fostering competition including acceding to theWorld Trade Organization (WTO) and encouraging entry of non-state firms. While there isevidence that firms reduced markups, there is competing evidence that incumbent firms gainedrents. We estimate the impact of net entry on rents at the market level using US trade uncertaintyand colonial treaty ports as excluded and included instruments for net entry. Wedocument that: 1) rents existed; 2) rents arose from a market expansion that was faster thannet entry; 3) rents grew most rapidly outside of treaty ports and in low-trade uncertainty sectors.