CRIEFF Discussion Paper
Number 0913
Growth and Survival Determinants of Chinese Private Firms: Fieldwork
evidence and econometric estimates
Gavin C
Reid and Zhibin Xu
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Abstract
This
paper reports on one of the first empirical attempts to investigate small firm
growth and survival, and their determinants, in the Peoples’ Republic of China.
The work is based on field work evidence gathered from a sample of 83 Chinese
private firms (mainly SMEs) collected initially by
face-to-face interviews, and subsequently by follow-up telephone interviews a
year later. We extend the models of Gibrat (1931) and Jovanovic (1982),
which traditionally focus on size and age alone (e.g. Brock and Evans, 1986), to
a ‘comprehensive’ growth model with two types of additional explanatory
variables: firm-specific (e.g. business planning); and environmental (e.g. choice
of location). We estimate two
econometric models: a ‘basic’ age-size-growth model; and a ‘comprehensive’
growth model, using Heckman’s two-step regression procedure. Estimation is by
log-linear regression on cross-section data, with corrections for sample
selection bias and heteroskedasticity. Our results
refute a pure Gibrat model (but support a more
general variant) and support the learning model, as regards the consequences of
size and age for growth; and our extension to a comprehensive model highlights
the importance of location choice and customer orientation for the growth of
Chinese private firms. In the latter model, growth is explained by variables
like planning, R&D orientation, market competition, elasticity of demand
etc. as well as by control variables. Our work on small firm growth achieves
two things. First, it upholds the validity of ‘basic’ size-age-growth models, and
successfully applies them to the Chinese economy. Second, it extends the
compass of such models to a ‘comprehensive’ growth model incorporating firm-specific
and environmental variables.
JEL
Classifications: D21, M13, L25, L26
Keywords: Chinese private firms, models
of small firm growth, choice of location, customer orientation
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