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Successful Factor Market Competition Pre-Privatisation? China`s

  • McGoldrick, Peter

    (Central Bank and Financial Services Authority of Ireland)

  • Walsh, P. Paul

    (Trinity College Dublin)

Can factor market competition, given pertinent incentives, bring about efficiency gains, or is privatisation necessary? We assess the impact of factor market competition on Chinese state-owned enterprises' productivity in a laboratory-like setting. The empirical evidence suggests that substantial efficiency gains are achievable pre-privatisation. Methodologically, we adapt an algorithm developed by Olley and Pakes (1996) which deals with simultaneity and selection bias in production function estimation. This is required since the reform process that introduced factor market competition involved endogenous group selection. While macro-level timing was important, enterprise characteristics, chiefly capital intensity and productivity, played an important role in the sequencing of reforms. Further, reform-induced competitive pressures brought about significant efficiency gains prior to privatisation. Finally, not controlling for selection bias would have resulted in an overestimation of reform-related productivity gains by up to fifty percent.

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Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 3/RT/07.

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Length: 42 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:cbi:wpaper:3/rt/07
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  1. Li, Hongbin, 2003. "Government's budget constraint, competition, and privatization: evidence from China's rural industry," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 486-502, September.
  2. Kasahara, Hiroyuki & Rodrigue, Joel, 2008. "Does the use of imported intermediates increase productivity? Plant-level evidence," Journal of Development Economics, Elsevier, vol. 87(1), pages 106-118, August.
  3. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
  4. Alexandre Rekine & Patrick Paul Walsh, 1998. "European Trade and Foreign Direct Investment. U-Shaping Industrial Output in Central and Eastern Europe: Theory and Evidence," LICOS Discussion Papers 7398, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  5. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
  6. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc.
  7. Laffont, Jean-Jacques & Qian, Yingyi, 1999. "The dynamics of reform and development in China: A political economy perspective," European Economic Review, Elsevier, vol. 43(4-6), pages 1105-1114, April.
  8. Dewatripont, Mathias & Roland, Gérard, 1993. "The Design of Reform Packages Under Uncertainty," CEPR Discussion Papers 860, C.E.P.R. Discussion Papers.
  9. Feenstra, Robert C & Markusen, James R & Zeile, William, 1992. "Accounting for Growth with New Inputs: Theory and Evidence," American Economic Review, American Economic Association, vol. 82(2), pages 415-21, May.
  10. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 130-43, Spring.
  11. Richard Blundell & Steve Bond & Frank Windmeijer, 2000. "Estimation in dynamic panel data models: improving on the performance of the standard GMM estimator," IFS Working Papers W00/12, Institute for Fiscal Studies.
  12. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  13. Jozef Konings & Patrick Paul Walsh, 1998. "Disorganisation in the Transition Process: Firm Level Evidence from Ukraine," LICOS Discussion Papers 7198, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  14. David D. Li & Changqi Wu, 2002. "The Colour of the Cats," The Economic and Social Review, Economic and Social Studies, vol. 33(1), pages 133-146.
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