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Investment dynamics and capital distortion: State and non-state firms in China

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  • Tang, Le

Abstract

This paper studies investment dynamics in Chinese manufacturing firms. The analysis estimates capital adjustment costs and uncovers capital distortion in state and non-state firms. There is strong evidence of quadratic adjustment cost and distortion in capital price for both types of firms. The capital distortion is a major source of capital misallocation in Chinese firms. Completely removing the distortion would increase aggregate total factor productivity (TFP) by 18–29%.

Suggested Citation

  • Tang, Le, 2021. "Investment dynamics and capital distortion: State and non-state firms in China," Journal of Asian Economics, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:asieco:v:73:y:2021:i:c:s1049007821000038
    DOI: 10.1016/j.asieco.2021.101274
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital adjustment cost; Capital distortion; Aggregate TFP; China;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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