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Why Is the Productivity Analysis Misleading for Gauging State Enterprise Performance?

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Author Info

  • Chongen Bai

    ()
    (Boston College)

  • David D. Li

    (University of Michigan)

  • Yijiang Wang

    (University of Minnesota)

Abstract

A large literature has documented impressive productivity growth in China's state enterprises during the reform. The evidence has been used to support the view that China's enterprise reform has been successful. We cast doubt on this view by arguing that productivity is not a reliable measure of state enterprise performance. A model is used to show that when firms are not profit maximizers, higher productivity may actually lead to greater allocative distortion, lower profits and lower economic efficiency. There is evidence this may be the case for many Chinese state enterprises during the reform.

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File URL: http://fmwww.bc.edu/EC-P/wp344.pdf
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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 344..

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Date of creation: 01 Jan 1997
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Handle: RePEc:boc:bocoec:344

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Related research

Keywords: State Enterprises; Enterprise Reform; Total Factor Productivity;

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  1. Jefferson, Gary H & Rawski, Thomas G & Yuxin, Zheng, 1992. "Growth, Efficiency, and Convergence in China's State and Collective Industry," Economic Development and Cultural Change, University of Chicago Press, vol. 40(2), pages 239-66, January.
  2. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(4), pages 873-92, August.
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Cited by:
  1. Jeffrey D. Sachs & Wing Thye Woo, . "Understanding China'S Economic Performance," Department of Economics, California Davis - Department of Economics 97-04, California Davis - Department of Economics.

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