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Reforming State Owned Enterprises in China: Effects of WTO Accession

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  • Claustre Bajona

    (Ryerson University)

  • Tianshu Chu

    (East-West Center)

Abstract

In December 2001 China became a member of the World Trade Organization (WTO). By signing the accession protocol China not only agreed to reform its trade policy but it also accepted regulations that imply reductions on government subsidies to the state-owned sector. In this paper we claim that the latter, largely ignored in the literature, generate important welfare gains that need to be attributed to WTO accession. We develop a dynamic general equilibrium model with state and private enterprises. We calibrate the model to the Chinese economy and we quantitatively assess the economic effects of reducing subsidies to the state sector as required by the WTO. We find the welfare benefits of such reduction in subsidies to be substantial. Using the context of China, this paper identifies a new channel through which WTO accession increases a country's welfare: it induces reforms on domestic subsidies which lead to an increase in economic efficiency. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 13 (2010)
Issue (Month): 4 (October)
Pages: 800-823

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Handle: RePEc:red:issued:06-12

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Keywords: State-owned enterprises; WTO accession; China; Government subsidies to industry;

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References

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  1. Chang-Tai Hsieh & Peter J. Klenow, 2007. "Misallocation and Manufacturing TFP in China and India," Discussion Papers, Stanford Institute for Economic Policy Research 07-006, Stanford Institute for Economic Policy Research.
  2. Sebastián Claro, 2002. "Tariff and FDI Liberalization: What to Expect from China´s Entry into the WTO?," Documentos de Trabajo, Instituto de Economia. Pontificia Universidad Católica de Chile. 209, Instituto de Economia. Pontificia Universidad Católica de Chile..
  3. Madanmohan Ghosh & John Whalley, 2000. "State-Owned Enterprises, Shirking and Trade Liberalization," NBER Working Papers 7696, National Bureau of Economic Research, Inc.
  4. Yi Chen & Diwan, Ishac, 2000. "When the bureaucrats move out of business : a cost-benefit assessment of labor retrenchment in China," Policy Research Working Paper Series, The World Bank 2354, The World Bank.
  5. Michael A. Kouparitsas, 1998. "Dynamic trade liberalization analysis: steady state, transitional and inter-industry effects," Working Paper Series, Federal Reserve Bank of Chicago WP-98-15, Federal Reserve Bank of Chicago.
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Cited by:
  1. Fabrice Defever & Alejandro Riaño, 2012. "China's Pure Exporter Subsidies," CESifo Working Paper Series 4054, CESifo Group Munich.
  2. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why have economic reforms in Mexico not generated growth?," Staff Report, Federal Reserve Bank of Minneapolis 453, Federal Reserve Bank of Minneapolis.
  3. Claustre Bajona & David L. Kelly, 2005. "Trade and the Environment with Pre-existing Subsidies: A Dynamic General Equilibrium Analysis," Working Papers, University of Miami, Department of Economics 0603, University of Miami, Department of Economics, revised 01 Mar 2006.
  4. Herrala, Risto & Jia, Yandong, 2012. "Has the Chinese growth model changed? A view from the credit market," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 5/2012, Bank of Finland, Institute for Economies in Transition.
  5. Chakraborty, Suparna & Otsu, Keisuke, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," MPRA Paper 41076, University Library of Munich, Germany.
  6. Seok, Byoung Hoon, 2011. "Growth and Global Imbalances: The Role of Learning-by-Exporting," MPRA Paper 49484, University Library of Munich, Germany, revised 30 Aug 2013.
  7. Seok, Byoung Hoon, 2011. "Growth and Global Imbalances: The Role of Learning-by-Exporting," MPRA Paper 46506, University Library of Munich, Germany, revised 30 Mar 2013.

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