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Das (Wasted) Kapital

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Author Info

  • David Dollar
  • Shang-Jin Wei

Abstract

Based on a survey that we designed and that covers a stratified random sample of 12,400 firms in 120 cities in China with firm-level accounting information for 2002-2004, this paper examines the presence of systematic distortions in capital allocation that result in uneven marginal returns to capital across firm ownership, regions, and sectors. It provides a systematic comparison of investment efficiency among wholly and partially state-owned, wholly and partially foreignowned, and domestic privately owned firms, conditioning on their sector, location, and size characteristics. It finds that even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms. Similarly, certain regions and sectors have consistently lower returns to capital than other regions and sectors. By our calculation, if China succeeds in allocating its capital more efficiently, it could reduce its investment intensity by 5 percent of GDP without sacrificing its economic growth (and hence deliver a greater improvement to its citizens'' living standard).

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/9.

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Length: 38
Date of creation: 01 Jan 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/9

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Related research

Keywords: Economic reforms; Industry; Resource allocation; private firms; outlier; survey; statistics; outliers; standard errors; scatter plot; equations; samples; random sample; measurement errors; tax equivalent; equation; surveys; sample size; prediction; simulation results; correlations;

This paper has been announced in the following NEP Reports:

References

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  1. Franklin Allen & Jun Qian & Meijun Qian, 2002. "Law, Finance, and Economic Growth in China," Center for Financial Institutions Working Papers 02-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Park, Albert & Sehrt, Kaja, 2001. "Tests of Financial Intermediation and Banking Reform in China," Journal of Comparative Economics, Elsevier, vol. 29(4), pages 608-644, December.
  3. Genevieve Boyreau-Debray & Shang-Jin Wei, 2005. "Pitfalls of a State-Dominated Financial System: The Case of China," NBER Working Papers 11214, National Bureau of Economic Research, Inc.
  4. Wendy Dobson & Anil K. Kashyap, 2006. "The Contradiction in China's Gradualist Banking Reforms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 103-162.
  5. Kui-Wai Li, 2003. "China's Capital and Productivity Measurement Using Financial Resources," Working Papers 851, Economic Growth Center, Yale University.
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