The Impact of Economic Reform on the Performance of Chinese State Enterprises: 1980-1989

The effectiveness of China's incremental industrial reform between 1980--89 is empirically investigated using a panel data set of 769 state enterprises from 36 2--digit industries. I derive and apply a method that measures marginal products of factors, changes in total factor productivity (TFP), and improvements in factor allocation between enterprises by comparing actual changes in output to actual changes in inputs. Under this approach, the production functions can differ arbitrarily across firms. Market power in product markets and deviations from efficient allocation of factors are also permitted. This study finds that there were marked improvements in marginal productivity of factors and in TFP between 1980--89, and that over 73 percent of output growth was attributable to TFP growth, and over 87 percent of TFP growth was attributable to improved incentives, intensified product market competition, and improvements in factor allocation.

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