The Economic Effect Of Factors Market Distortions

The present research shows that distortions exist in the market of production factors of China during the transition period. Based on literature review, this paper firstly analyzes the formation mechanism of the factors market distortion by applying economic principle. Secondly, estimates the distortion by using the production function. Thirdly, investigates the economic effects caused by the distortion from industrial efficiency, employment and regional disparity. Lastly, draws the conclusions and revelation.Chapter 2 is a literature review. This part starts with the definition of the factors market distortion. Then, reviews Chinese and foreign literatures about economic effects caused by factors market distortion from five aspects: resource allocation, TFP, income distribution, foreign trade and scale effect. At last, the research question and basic thoughts are brought forward by analyzing the main problems of factor market occurred since reform and opening-up.Chapter 3 is an analysis about the inner mechanism of China's factors market distortion by using game theory and path dependence theory of new institution economics. At first, we describe the distortion of the important markets such as capital, labor and land markets during the transition period, and then give an analysis about that based on path dependence theory. This paper holds the idea that, under the constraint of financial system and the assessment on the government performance, the competition game between local governments makes the mechanism of factors market distortion lock in the inefficient state.Chapter 4 is a measurement of the factor price distortion of China's capital and labor markets. At first, we discuss the relationship between price distortion and the forms of ownership, and compare the different methods which are used to estimate factor price distortion. Furthermore, based on the data of manufacturing industry from 2001 to 2003, we estimate the distortion of capital and labor factors by using production function. The result not only provides empirical supports, but also explains the capital deepening of the state-owned enterprises and the migrant worker shortage.Chapter 5 is a positive analysis about the loss of industrial efficiency caused by factors market distortion. We firstly review present researches about technical efficiency. Then discuss the internal mechanism of factors market distortion and technical efficiency. At last, based on the data of manufacturing industry across 30 provinces in China from 1999 to 2005, we empirically analyze the efficiency loss due to factors market distortion by using the Data Envelopment Analysis method. The result shows that factors market distortion leads to distorted price ratio, and then results in industry structural distortion and scale efficiency loss. With the input remaining the same, if the technical efficiency loss caused by factors market distortion be eliminated, the output of manufacture industry will be increased by at least 11%.Chapter 6 is a positive analysis about employment effect caused by factors market distortion. Firstly, we discuss the relationship between factor market distortion and employment effect from labor and capital markets, and then proves that under the system restriction, there is an obvious phenomenon of the substitution of capital for labor. If the degree of substitution is too high, economic growth and employment are not harmonious. Secondly, we give a quantitative analysis based on the panel dada across 29 provinces from 1995 to 2004 and the industrial data from2001 to 2003 classified by the ownership. The result supports our assumption.Chapter 7 is a positive analysis about the relationship between factors market distortion and regional income disparity. Based on the neo-classical trade theory, we analyze both the inner mechanism of the flow of factors and the convergences of income level. Furthermore, we discuss the connection between factors market distortion and the enlarging regional income disparity. At last, using the panel dada across 29 provinces from 1978 to 2004, we make an empirical analysis about the impact of factors market distortion on regional income disparity. The result proves our preceding hypothesis. In a word, according to the background of economic transition of China, this paper researches on the economic effect of factors market distortion by using the modern economic theory and method. It not only can help us to comprehend the effect of factors market distortion, but also has realistic significance on factors allocation and economic efficiency.