State-Owned Enterprise Behaviour Responses to Trade Reforms: Some Analytics and Numerical Simulation Results Using Chinese Data
We note the absence of prior literature on analytical structures to be used for China and other economies with extensive SOEs when evaluating behavioural responses of SOEs to trade policy and other changes. This is despite both the large empirical literature discussing the productivity effects of Chinese SOE enterprise reform, and wider policy discussion of the potential impacts of various reform initiatives. We present two simple analytical formulations of SOE behaviour in response to trade policy change with the aim of investigating how traditional competitive models of enterprise behaviour can mislead when used in policy debate. One formulation centres on SOE managerial control. In this enterprise managers are politically appointed, expect any non performing loans to be recapitalized by state banks andhence capital is centrally allocated by credit rationing. The managers are assured to maximize the size of the enterprise rather than profits since this yields maximal networking benefits to managers. This implies labour is priced at its average rather than its marginal product, and with a competitive non-manufacturing (agricultural) industry free trade is not optimal policy. The other assumes worker control of SOEs and that workers satisfice in their supply of effort to the enterprise given both fixed wage rates and enterprise employment and otherwise shirk or pursue second jobs. In this formulation the enterprise meets their budget constraint and covers costs. With leisure in the preferences of enterprise members, their leisure consumption will be implied by the satisfying behaviour of the enterprise and will be non optimal. In both model variants, implications for trade policy are different from those of a standard competitive model, and computations using models calibrated to 2003 Chinese data suggest the differences can be large.
|Date of creation:||Dec 2006|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Woo Wing Thye & Hai Wen & Jin Yibiao & Fan Gang, 1994. "How Successful Has Chinese Enterprise Reform Been? Pitfalls in Opposite Biases and Focus," Journal of Comparative Economics, Elsevier, vol. 18(3), pages 410-437, June.
- Ghosh, Madanmohan & Whalley, John, 2008.
"State owned enterprises, shirking and trade liberalization,"
Elsevier, vol. 25(6), pages 1206-1215, November.
- Ghosh Madanmohan & John Whalley, 2000. "State-Owned Enterprises, Shirking and Trade Liberalization," CESifo Working Paper Series 300, CESifo Group Munich.
- Madanmohan Ghosh & John Whalley, 2000. "State-Owned Enterprises, Shirking and Trade Liberalization," NBER Working Papers 7696, National Bureau of Economic Research, Inc.
- Terrie L. Walmsley & Thomas W. Hertel, 2001. "China's Accession to the WTO: Timing is Everything," The World Economy, Wiley Blackwell, vol. 24(8), pages 1019-1049, September.
- Hertel, Thomas W. & Terrie Walmsley, 2000. "China's Accession to the WTO: Timing is Everything," GTAP Working Papers 403, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
- John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204, January.
- Elena Ianchovichina & Will Martin, 2004. "Impacts of China's Accession to the World Trade Organization," World Bank Economic Review, World Bank Group, vol. 18(1), pages 3-27.
- Ianchovichina, Elena & Martin, William, 2003. "Economic impacts of China's accession to the World Trade Organization," Policy Research Working Paper Series 3053, The World Bank.
- Wang, Zhi, 2003. "The impact of China's WTO accession on patterns of world trade," Journal of Policy Modeling, Elsevier, vol. 25(1), pages 1-41, January. Full references (including those not matched with items on IDEAS)