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Reforming State Owned Enterprises in China: Effects of WTO Accession

Author

Listed:
  • Claustre Bajona

    (Ryerson University)

  • Tianshu Chu

    (East-West Center)

Abstract

In December 2001 China became a member of the World Trade Organization (WTO). By signing the accession protocol China not only agreed to reform its trade policy but it also accepted regulations that imply reductions on government subsidies to the state-owned sector. In this paper we claim that the latter, largely ignored in the literature, generate important welfare gains that need to be attributed to WTO accession. We develop a dynamic general equilibrium model with state and private enterprises. We calibrate the model to the Chinese economy and we quantitatively assess the economic effects of reducing subsidies to the state sector as required by the WTO. We find the welfare benefits of such reduction in subsidies to be substantial. Using the context of China, this paper identifies a new channel through which WTO accession increases a country's welfare: it induces reforms on domestic subsidies which lead to an increase in economic efficiency. (Copyright: Elsevier)

Suggested Citation

  • Claustre Bajona & Tianshu Chu, 2010. "Reforming State Owned Enterprises in China: Effects of WTO Accession," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(4), pages 800-823, October.
  • Handle: RePEc:red:issued:06-12
    DOI: 10.1016/j.red.2009.07.003
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    References listed on IDEAS

    as
    1. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1403-1448.
    2. Ghosh, Madanmohan & Whalley, John, 2008. "State owned enterprises, shirking and trade liberalization," Economic Modelling, Elsevier, vol. 25(6), pages 1206-1215, November.
    3. Sebastián Claro, 2002. "Tariff and FDI Liberalization: What to Expect from China's Entry into the WTO?," Documentos de Trabajo 209, Instituto de Economia. Pontificia Universidad Católica de Chile..
    4. Yi Chen & Diwan, Ishac, 2000. "When the bureaucrats move out of business : a cost-benefit assessment of labor retrenchment in China," Policy Research Working Paper Series 2354, The World Bank.
    5. Michael A. Kouparitsas, 1998. "Dynamic trade liberalization analysis: steady state, transitional and inter-industry effects," Working Paper Series WP-98-15, Federal Reserve Bank of Chicago.
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    Cited by:

    1. Fabrice Defever & Alejandro Riaño, "undated". "China's Pure Exporter Subsidies," Discussion Papers 12/11, University of Nottingham, GEP.
    2. Fabrice Defever & Alejandro Riaño, 2016. "Protectionism through Exporting: Subsidies with Export Share Requirements in China," Discussion Papers 2016-03, University of Nottingham, GEP.
    3. Mohammad Farhad & Michael Jetter & Abu Siddique & Andrew Williams, 2018. "Misreported Trade," CESifo Working Paper Series 7150, CESifo Group Munich.
    4. Defever, Fabrice & Riaño, Alejandro, 2017. "Subsidies with export share requirements in China," Journal of Development Economics, Elsevier, vol. 126(C), pages 33-51.
    5. Kirill Borissov & Mikhail Pakhnin, 2018. "Economic growth and property rights on natural resources," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 423-482, March.
    6. Agarwal, Natasha & Milner, Chris & Riaño, Alejandro, 2014. "Credit constraints and spillovers from foreign firms in China," Journal of Banking & Finance, Elsevier, vol. 48(C), pages 261-275.
    7. Seok, Byoung Hoon, 2011. "Growth and Global Imbalances: The Role of Learning-by-Exporting," MPRA Paper 49484, University Library of Munich, Germany, revised 30 Aug 2013.
    8. Seok, Byoung Hoon, 2011. "Growth and Global Imbalances: The Role of Learning-by-Exporting," MPRA Paper 46506, University Library of Munich, Germany, revised 30 Mar 2013.
    9. Suparna Chakraborty & Keisuke Otsu, 2012. "Deconstructing Growth - A Business Cycle Accounting Approach with application to BRICs," Studies in Economics 1212, School of Economics, University of Kent.
    10. Timothy J. Kehoe & Kim J. Ruhl, 2010. "Why Have Economic Reforms in Mexico Not Generated Growth?," Journal of Economic Literature, American Economic Association, vol. 48(4), pages 1005-1027, December.
    11. Bajona, Claustre & Kelly, David L., 2012. "Trade and the environment with pre-existing subsidies: A dynamic general equilibrium analysis," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 253-278.
    12. Maggi, Giovanni, 2014. "International Trade Agreements," Handbook of International Economics, Elsevier.
    13. repec:eee:respol:v:47:y:2018:i:8:p:1448-1462 is not listed on IDEAS
    14. Herrala, Risto & Yandong, Jia, 2012. "Has the Chinese growth model changed? : A view from the credit market," BOFIT Discussion Papers 5/2012, Bank of Finland, Institute for Economies in Transition.
    15. Wojciech Maliszewski & Longmei Zhang, 2015. "China’s Growth; Can Goldilocks Outgrow Bears?," IMF Working Papers 15/113, International Monetary Fund.

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