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Abstract
Wenzhou used to be one of the poorest regions in eastern China. With limited arable land, poor
road access to major cities, and little support from the upper level governments, this region seemed to
lack all the conditions necessary for economic growth. However, over the past several decades Wenzhou
has developed the most dynamic private sector in China, and has accordingly achieved one of the fastest
growth rates. In particular, the footwear industry in Wenzhou has grown from a negligible market share to
the largest in China. Here, we report a survey of 140 Wenzhou-based footwear enterprises of various
scales, and use this information to examine the driving forces behind the dramatic rural industrial growth
seen in this region. Our results show that clustering deepens the division of labor in the production
process and makes it possible for small entrepreneurial firms to enter the industry by focusing on a
narrowly defined stage of production. Therefore, Wenzhou represents an example of how clustering plays
a significant role in helping fledgling rural industries overcome the growth constraints of capital and
technology in the incipient stage of industrialization.