JACIII Vol.25 No.5 pp. 546-553
doi: 10.20965/jaciii.2021.p0546


Market Distortion, Inter-Provincial Factor Misallocation, and Total Factor Productivity

Shangfeng Zhang*,**,***,†, Jingjue Xu*, Wei Chen*, Manzhou Teng*, Xiuwen Yu*, and Huiru Ren*

*School of Statistics and Mathematics, Zhejiang Gongshang University
18 Xuezheng Street, Xiasha Education Park, Hangzhou, Zhejiang 310018, China

**Modern Business Research Center, Zhejiang Gongshang University
Zhejiang, China

***Collaborative Innovation Center of Statistical Data Engineering, Technology & Application
Zhejiang, China

Corresponding author

August 20, 2020
April 1, 2021
September 20, 2021
market distortion, factor misallocation, total factor productivity, time-varying elasticity production function

As an emerging economy, market distortions exist in China’s institutional adjustment during its economy transformation. However, the price distortion of capital and labor factors will lead to factor misallocation among provinces. This will eventually reduce the total factor productivity (TFP) at the national level. Based on Hsieh and Klenow’s [1] model framework, this paper aims to measure the degree of misallocation of capital and labor factors among provinces, and estimates the growth potential of China’s TFP by using input-output data from 1993 to 2017. The findings show that: First, the degree of inter-provincial labor misallocation is greater than that of capital. For example, in 2017, the degree of capital (labor) misallocation was 5.77% (10.25%), resulting in China’s TFP loss of 17.23%. Second, due to the factor marketization reforms, the degree of labor misallocation has declined while the degree of capital misallocation has intensified in recent years. Lastly, this paper introduces the time-varying elasticity production function model, finding that using the Cobb-Douglas production function will cause the factor misallocation to be underestimated by 5.91% due to the assumption of constant output elasticity.

The degree of factor misallocation between provinces

The degree of factor misallocation between provinces

Cite this article as:
S. Zhang, J. Xu, W. Chen, M. Teng, X. Yu, and H. Ren, “Market Distortion, Inter-Provincial Factor Misallocation, and Total Factor Productivity,” J. Adv. Comput. Intell. Intell. Inform., Vol.25 No.5, pp. 546-553, 2021.
Data files:
  1. [1] C.-T. Hsieh and P. J. Klenow, “Misallocation and Manufacturing TFP in China and India,” The Quarterly J. of Economics, Vol.124, No.4, pp. 1403-1448, 2009.
  2. [2] C. I. Jones, “Misallocation, Economic Growth, and Input-Output Economics,” National Bureau of Economic Research (NBER) Working Paper No.16742, 2011.
  3. [3] S. Aoki, “A Simple Accounting Framework for the Effect of Resource Misallocation on Aggregate Productivity,” J. of the Japanese and Int. Economies, Vol.26. No.4, pp. 473-494, 2012.
  4. [4] D. Restuccia and R. Rogerson, “Misallocation and Productivity,” Review of Economic Dynamics, Vol.16, No.1, pp. 1-10, 2013.
  5. [5] E. Bartelsman, J. Haltiwanger, and S. Scarpetta, “Cross-Country Differences in Productivity: The Role of Allocation and Selection,” American Economic Review, Vol.103, No.1, pp. 305-334, 2013.
  6. [6] L. Brandt, T. Tombe, and X. Zhu, “Factor Market Distortions Across Time, Space and Sectors in China,” Review of Economic Dynamics, Vol.16, No.1, pp. 39-58, 2013.
  7. [7] W. Wang and Z. Niu, “Resource’s Misallocation and Multi-Dimensional Industrial TFP in China,” The J. of Quantitative & Technical Economics, Vol.36, No.3, pp. 20-37, 2019 (in Chinese).
  8. [8] X. Qian, J. Zhang, and H. Mao, “Vertical Structure, Resource Misallocation and Industrial Policy,” Economic Research J., Vol.54, No.2, pp. 54-67, 2019 (in Chinese).
  9. [9] R. Lagos, “A Model of TFP,” The Review of Economic Studies, Vol.73, No.4, pp. 983-1007, 2006.
  10. [10] N. Guner, G. Ventura, and Y. Xu, “Macroeconomic Implications of Size-Dependent Policies,” Review of Economic Dynamics, Vol.11, No.4, pp. 721-744, 2008.
  11. [11] A. Lileeva and D. Trefler, “Improved Access to Foreign Markets Raises Plant-Level Productivity … For Some Plants,” The Quarterly J. of Economics, Vol.125, No.3, pp. 1051-1099, 2010.
  12. [12] A. V. Banerjee and B. Moll, “Why Does Misallocation Persist?,” American Economic J.: Macroeconomics, Vol.2, No.1, pp. 189-206, 2010.
  13. [13] G. Gong and G. Hu, “Efficiency of Resource Allocation and Manufacturing Total Factor Productivity in China,” Economic Research J., Vol.48, No.4, pp. 4-15+29, 2013 (in Chinese).
  14. [14] D. Wen, “Resource Misallocation, TFP and Growth Potential in China’s Manufacturing,” China Economic Quarterly, Vol.18, No.2, pp. 617-638, 2019 (in Chinese).
  15. [15] X. Li and H. Si, “Resource Misallocation and Economic Efficiency Loss in China: Trend and Decomposition,” Modern Economic Science, Vol.41, No.6, pp. 1-12, 2019 (in Chinese).
  16. [16] J. Zhang, G. Wu, and J. Zhang, “The Estimation of China’s Provincial Capital Stock: 1952–2000,” Economic Research J., Vol.39, No.10, pp. 35-44, 2004 (in Chinese).
  17. [17] “China Statistical Yearbook,” China Statistical Publishing House, 1994-2018 (in Chinese).
  18. [18] S. Zhang and B. Xu, “Production Functions with Time-Varying Elasticities and Under the Catch-Up Consensus: Total Factor Productivity,” China Economic Quarterly, Vol.8, No.2, pp. 551-568, 2009 (in Chinese).
  19. [19] H. Xiao and F. Hao, “Comparative Research on the Structure of Primary Distribution of Income Among China and Foreign Countries,” Finance & Trade Economics, Vol.30, No.2, pp. 13-21+45+136, 2009 (in Chinese).
  20. [20] S. Zhang and B. Xu, “Analysis of China’s Unbalanced Economic Growth,” The J. of Quantitative & Technical Economics, Vol.32, No.3, pp. 94-110, 2015 (in Chinese).
  21. [21] C. Chang, K. Chen, D. F. Waggoner, and T. Zha, “Trends and Cycles in China’s Macroeconomy,” NBER Macroeconomics Annual, Vol.30, No.1, pp. 1-84, 2015.
  22. [22] S. Zhang, Y. Liu, and D.-H. Huang, “Contribution of Factor Structure Change to China’s Economic Growth: Evidence from the Time-Varying Elastic Production Function Model,” Economic Research-Ekonomska Istraživanja, Vol.33, No.1, pp. 2919-2942, 2020.
  23. [23] S. Zhang, Y. Liu, and D.-H. Huang, “Understanding the Mystery of Continued Rapid Economic Growth,” J. of Business Research, Vol.124, pp. 529-537, 2021.

*This site is desgined based on HTML5 and CSS3 for modern browsers, e.g. Chrome, Firefox, Safari, Edge, Opera.

Last updated on Jul. 12, 2024