GEP 13/04: Intra-National Protectionism in China: Evidence from the Public Disclosure of 'Illegal' Drug Advertising

Summary

This paper provides first direct micro evidence for intra-national protectionism in China, showing that pharmaceutical firms from outside a province are discriminated against by selective application of ambiguous advertisement rules.

Abstract

This paper provides micro-level evidence that drug advertising regulations and inspections in China are used by local governments to discriminate against firms from outside the province. Furthermore, the degree of discrimination varies across firms in that drug manufacturers which have closer ties with rival provinces are more likely to be targeted. These findings demonstrate that giving provincial governments strong incentives to compete with each other may exacerbate the market distortions inherent in a partially reformed economy such as China.

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Authors

Markus Eberhardt, Zheng Wang and Zhihong Yu

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