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Factor Market Distortions Across Time, Space, and Sectors in China

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  • Loren Brandt

    (University of Toronto)

  • Trevor Tombe

    (University of Toronto)

  • Xiadong Zhu

    (University of Toronto)

Abstract

In this paper, we measure TFP losses in China's non-agricultural economy associated with labour and capital misallocation across provinces and sectors between 1985-2007. We also decompose the overall loss into factor market distortions within provinces (between state and non-state sectors) and distortions between provinces (within sectors). Over the entire period, misallocation lowers aggregate non-agricultural TFP by an average of twenty percent. However, after initially declining, these losses increased appreciably beginning in the mid-1990s. This reversal can be attributed almost exclusively to increasing misallocation of capital between state and non-state sectors within provinces, while losses from between province misallocation remained fairly constant. We argue that the recent increase in capital market distortions is related to government policies that encourage investments in the state sector at the expense of investments in the more productive non-state sector. (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): 16 (2013)
Issue (Month): 1 (January)
Pages: 39-58

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Handle: RePEc:red:issued:11-95

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Keywords: Factor markets; Distortions; Total factor productivity; China;

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References

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  1. Fariha Kamal & Mary E. Lovely, 2013. "Labor Allocation in China: Implicit Taxation of the Heterogeneous Non-State Sector," CESifo Economic Studies, CESifo, CESifo, vol. 59(4), pages 731-758, December.
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Cited by:
  1. Holger Breinlich & Gianmarco I.P. Ottaviano & Jonathan R.W. Temple, 2013. "Regional growth and regional decline," Economics Discussion Papers, University of Essex, Department of Economics 729, University of Essex, Department of Economics.
  2. Suqin Ge & Dennis Tao Yang, 2014. "Changes In China'S Wage Structure," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 12(2), pages 300-336, 04.
  3. Chadwick Curtis, 2013. "Economic Reforms and the Evolution of China's TFP," 2013 Meeting Papers, Society for Economic Dynamics 1023, Society for Economic Dynamics.
  4. Yong Wang & Xuewen Liu & Xi Li, 2013. "A Model of China's State Capitalism," 2013 Meeting Papers, Society for Economic Dynamics 853, Society for Economic Dynamics.
  5. Ma, Shuzhong & Feng, Han, 2013. "Will the decline of efficiency in China's agriculture come to an end? An analysis based on opening and convergence," China Economic Review, Elsevier, Elsevier, vol. 27(C), pages 179-190.
  6. Diego Restuccia, 2013. "factor misallocation and development," The New Palgrave Dictionary of Economics, Palgrave Macmillan, Palgrave Macmillan.
  7. Xiaodong Zhu, 2012. "Understanding China's Growth: Past, Present, and Future," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 26(4), pages 103-24, Fall.
  8. Carsten A Holz & Aaron Mehrotra, 2013. "Wage and price dynamics in a large emerging economy: The case of China," BIS Working Papers 409, Bank for International Settlements.
  9. Zheng (Michael) Song & Guiying (Laura) Wu, 2013. "A Structural Estimation on Capital Market Distortions in Chinese Manufacturing," Economic Growth centre Working Paper Series, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre 1306, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
  10. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper 54129, University Library of Munich, Germany.
  11. repec:clg:wpaper:2013-29 is not listed on IDEAS
  12. Loren Brandt & Johannes Van Biesebroeck & Yifan Zhang, 2009. "Creative Accounting or Creative Destruction? Firm-level Productivity Growth in Chinese Manufacturing," NBER Working Papers 15152, National Bureau of Economic Research, Inc.

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