Privatization and economic performance: evidence from Chinese provinces

Abstract Based upon an aggregate production function, this paper develops a growth model to test the hypothesis that the further the ownership moves into private hands, the greater are efficiency gains and the more rapid is economic growth. Using provincial data in the period 1985–1997, the paper finds that the hypothesis cannot be rejected in China. That is to say, provinces with greater progress in privatization witnessed greater gains in marginal productivity of capital and more rapid economic growth. To test the robustness of the finding, the study classifies forms of ownership into different categories that represent variant degree of the privatization process. The finding suggests that China should pursue the ownership reform in the direction of privatization to maintain growth momentum.

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