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Excess Investment and Efficiency Loss During Reforms: The Case of Provincial-level Fixed-Asset Investment in People's Republic of China

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Listed:
  • Qin, Duo

    (Asian Development Bank)

  • Song, Haiyan

    (University of Surrey)

Abstract

A method is proposed to estimate efficiency of aggregate investment in a transitional economy, using provincial panel data from the People's Republic of China (PRC) as an experimental case. Inefficiency is defined on the basis of disequilibrium investment. It is further decomposed into allocative and production inefficiency. Allocative inefficiency is related to policy/institutional factors. The main findings are: the PRC investment demand hardly responds to capital pricing signals, whereas it is strongly receptive to expansionary fiscal policies and interprovincial network effect. Once institutional factors are separated out, there are clear signs of increasing allocative efficiency and receding growth in regional investment disparity. The estimates on production efficiency are broadly in line with regional development.

Suggested Citation

  • Qin, Duo & Song, Haiyan, 2003. "Excess Investment and Efficiency Loss During Reforms: The Case of Provincial-level Fixed-Asset Investment in People's Republic of China," ADB Economics Working Paper Series 47, Asian Development Bank.
    • Handle: RePEc:ris:adbewp:0047
    as

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    References listed on IDEAS

    as
    1. Qin, Duo & Gilbert, Christopher L., 2001. "The Error Term In The History Of Time Series Econometrics," Econometric Theory, Cambridge University Press, vol. 17(2), pages 424-450, April.
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    More about this item

    Keywords

    allocative efficiency; economic transition; investment efficiency; production efficiency; regional development;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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