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| The Construction of a Unified Large Market and the Location Choice of Firms' Procurement |
| YUAN Jin, YU Lili, FENG Guimei
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| School of Economics and Statistics, Guangzhou University; Institute of International Business/School of Economics, Shanghai University of International Business and Economics School of Economics/Fudan University; School of Economics, Shanghai University of Finance and Economics |
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Abstract To actively respond to the complex and ever-changing external situation, and to rationally promote domestic supply-side reforms, China has consistently emphasized increasing domestic openness, as well as adhering to a high level of openness to the outside world. In April 2022, the “Opinions of the Central Committee of the Communist Party of China and the State Council on Accelerating the Construction of a Nationally Unified Large Market” was officially published. This document described the government's aim to reduce and even eliminate institutional and market barriers among regions. In this context, an important requirement for China to achieve steady progress in the economy is to utilize a unified large market to allocate resources, optimize division of labor, and promote growth. Based on the perspective of inter-regional supply-side cooperation among enterprises, this paper examines the impact of the construction of a unified large market on firms' procurement behavior.
From a theoretical perspective, this study innovatively constructs models of the impact of market integration on cross-regional procurement choices, considering both macro-industry connections and micro-enterprise behavior. It argues that if a unified large market is constructed, enterprise procurement choices will lean toward the locations of suppliers with a higher degree of market integration. From an empirical perspective, this study performs numerical simulation to demonstrate, at the macro-industry level, that an increased level of integration in a specific province will induce other regions to procure more intermediate goods from that province's integrated market. Additionally, based on data from the China Statistical Yearbook and CSMAR National Database for the years 2010 to 2019, along with data on the external policy impact of the Three-Year Action Plan for the Integrated Development of the Yangtze River Delta, the study identifies the impact of market integration on the cross-regional procurement choices of micro-enterprises.
The findings are as follows. First, from the perspective of macro-industry linkages, the construction of a unified large market will promote inter-regional trade in intermediate goods. At the micro level, this will be primarily manifested in enterprises choosing to procure more from regions with a higher degree of market integration. Second, the empirical results reveal that an increase in the degree of market integration will alter the location choices of enterprise procurement. Specifically, enterprises will be more inclined to choose regions with a higher degree of market integration for their procurement. This effect will be strengthened by the Three-Year Action Plan for the Integrated Development of the Yangtze River Delta. Third, for enterprises that are more cost-sensitive, such as those with lower productivity, non-state-owned enterprises, those located in the central and western regions, and service-oriented enterprises, the impact of adjusting their procurement location choices due to changes in market integration is more pronounced.
The study's contributions are as follows. First, from a research perspective, it is the first study to investigate the impact of the construction of a domestically unified large market on the regional cooperation relationships between upstream and downstream enterprises. Second, it establishes theoretical models related to market integration and the domestic circular economy from both macro-and micro-perspectives. Third, the study validates the relevant conclusions of the theoretical model through numerical simulation and regression analysis. Finally, building on the identification of the relationship between market integration and enterprise procurement location choices, the study also explores, from a heterogeneity perspective, the “relief and resolution” effects that the integration of supplier locations may have on cost-sensitive enterprises.
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Received: 28 September 2023
Published: 17 July 2024
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