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

Paper:

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

Received:
August 20, 2020
Accepted:
April 1, 2021
Published:
September 20, 2021
Keywords:
market distortion, factor misallocation, total factor productivity, time-varying elasticity production function
Abstract
Market Distortion, Inter-Provincial Factor Misallocation, and Total Factor Productivity

The degree of factor misallocation between provinces

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.

Cite this article as:
Shangfeng Zhang, Jingjue Xu, Wei Chen, Manzhou Teng, Xiuwen Yu, and Huiru 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:
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Last updated on Oct. 22, 2021