Sources of Investment Inefficiency: The Case of Fixed-Asset Investment in China
AbstractThis study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and production inefficiency based on standard production theory. Allocative inefficiency is measured by disequilibrium investment demand. Institutional factors are then taken into consideration as possible explanatory variables of the disequilibrium. The resulting model is applied to Chinese provincial panel data. The main findings are: Chinese investment demand is strongly receptive to expansionary fiscal policies and inter-provincial network effects; and although there are signs of increasing allocative efficiency, the tendency of over-investment remains, even with improvements in production efficiency.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 584.
Date of creation: Jan 2007
Date of revision:
Over-investment; Efficiency; Disequilibrium; Soft-budget constraint;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
- P3 - Economic Systems - - Socialist Institutions and Their Transitions
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-02-03 (All new papers)
- NEP-CNA-2007-02-03 (China)
- NEP-DEV-2007-02-03 (Development)
- NEP-EFF-2007-02-03 (Efficiency & Productivity)
- NEP-MAC-2007-02-03 (Macroeconomics)
- NEP-PBE-2007-02-03 (Public Economics)
- NEP-TRA-2007-02-03 (Transition Economics)
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