The impact of dismantling state monopoly on market integration: Evidence from the edible salt reform in China

Abstract

State monopoly hinders market integration through rising interregional trade barriers. This article provides an account of the market reform on dismantling state monopoly as a natural experiment to investigate the extent to which the reform affects domestic market integration. The state monopoly on China's edible salt market was dismantled by implementing a market reform on the first of January 2017 that terminated the 2000-year state monopoly on edible salt. Using a set of unique retailing price datasets on edible salt across cities over 10-day periods every month, we take advantage of the regional and temporal variances of edible salt retailing price between origins of production and other cities to demonstrate market integration nationwide in China. The regression discontinuity estimation is leveraged based on an apparently sharp discontinuity in inter-city price differences. The results suggest that the dissolution of state monopoly on edible salt market leads to a 3.14 percent decrease in price differences of edible salt between origins and other cities, thus ultimately resulting in the promoted market integration. The results also suggest that the varied iodine contents in edible salt, the market power of state-owned enterprises and the government-firm relationships exert promising roles in the influence.