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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)

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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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Publisher 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;

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
D29 - Microeconomics - - Production and Organizations - - - Other
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
P00 - Economic Systems - - General - - - General
P3 - Economic Systems - - Socialist Institutions and Their Transitions

References listed on IDEAS
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  1. Groves, Theodore & Yongmiao Hong & John McMillan & Barry Naughton, 1995. "China's Evolving Managerial Labor Market," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 873-92, August. [Downloadable!] (restricted)
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  1. Jeffrey D. Sachs & Wing Thye Woo, 1997. "Understanding China's Economic Performance," NBER Working Papers 5935, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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