Market Facilitation by Local Government and Firm Efficiency : Evidence from China

This paper uses data from a large survey
of Chinese firms to investigate whether local government
efforts to facilitate market development improve firm
efficiency. Both government provision of information about
products, markets, and innovation and government assistance
in arranging loans are positively associated with firm
efficiency. Those private firms with weak access to and
knowledge of financial, input, and product markets benefit
most from such assistance. These patterns are robust across
multiple estimation approaches. Case studies of specific
types of market facilitation by local governments are
provided. The evidence is consistent with the notion that
government facilitation can help some firms overcome market
failures in the early stages of development. The paper
argues that changing fiscal dynamics that forced local
governments to become increasingly self-reliant in
generating revenue and a government promotion system based
on local economic performance compelled these efforts at
market facilitation.