Competition and market integration : the case of China's auto industry

  • Xi TIAN

Student thesis: MPhil Thesis (Lingnan)


The “special treatments” of automobile industry in China, especially in the forms of local protectionism, have been criticized as evidences of domestic market fragmentation for long. Whether these “special treatments” have stunted the integration of a national auto market in China remains a question.

This paper seeks to examine the degree of market integration in the automobile markets in China by using tests of cointegration between prices of spatial markets. Several econometric approaches for spatial price analysis, including the ADF unit root test, Maddala-Wu’s Fisher type panel unit root test and more restrictive Dufour-Torres panel unit root test are applied to monthly average retail prices for the main models sold across 36 cities from 1994-2006. Besides the above conventional linear methods, the author also applies the newly developed nonlinear unit root method proposed by Kapetanios et al. (2003).

Test results indicate that the nonlinear test support convergence more often than the conventional linear unit root tests. Moreover, they also reveal that price convergence and hence market integration hold for majority of models and markets. The paper also investigates possible explanatory factors in price disparities of auto markets among cities. As the evidence shows, the geographic distance between markets, difference of per capital income, and the existence of local production play important roles in the absolute price differentials as well as the volatility of price differentials among cities.
Date of Award2007
Original languageEnglish
Awarding Institution
  • Department of Economics
SupervisorPing LIN (Supervisor) & Xiangdong WEI (Supervisor)

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