The Effect Of Administrative Monopoly On Micro-Level Resource Allocation Efficiency In Transitional Process

Government behavior is an important topic in transitional process. "Helping hands" supporting economicdevelopment is attributed to the success of China's economic reform.Qian(1997) thinks Chinese government is a market-preserving federalism government, which plays a crucial role in cultimating market power, improving social credit and contract enforcement. "Being positive but not intervention" is thought to be the main reason of China's rise. Local government has great incentive to economic development, compete with neighbour region to faster economic economic growth rapid and bail out State-owned Enterprise which is running in the red deficit.In the process of marketization, local government intervenes the economy is generally, of which local administrative monopoly is a dominating pattern. According to the analysis approach of Yu Liangchun, Yu Donghua(2009), we define local administrative monopoly as government using administrative power to restrict market competiton. At the earlier stage of economic development, resource input will lead to satisfied rapid economic growth. When reform gets to difficult stage, the importance of property rights, institutions will increase.at this moment, local administrative monopoly will restrict economic development. Understanding the orginal and mechanism of local administrative monopoly becomes more important. So far, most research concentrates on the following points:what is local administrative monopoly; how and how much it affects macroeconomy. When it comes to the effect of local administrative monopoly on micro-level economy, there is little literature. We still do not know the difference of local administrative monopoly of local regions; neither do we know the effect of local administrative monopoly on different types of enterprises. This dissertation tries to analyze the effect of local administrative monopoly on micro-level resource allocation efficiency.The assignment of the dissertation is the following:Chapter one is introduction. It introduces the research significance, methodology and new ideas and limit of the dissertation.Chapter two surveys the previous researches on local administrative monopoly, government behavior in transitional economy, corporate governance in transitional economy, credit discrimination and law-economics. Comments on current researches of these issues have also been made in order to achieve a clear guidance of the rest parts of this dissertation.Chapter three try to answer the question that why local governments tend to change the micro-level resource allocation efficiency. Asymmetrical level of fiscal ability and obligation when institutions are not good, unreasonable assess mechanism of government officer, and irrational manner of economic growth make local administrative monopoly a reasonable choice of government. According to a simply mathematic model, insufficiency fiscal incentive takes government into intervening market. Extra-budget revenue, transferring payment, land finance and non-transparent fiscal department may affect the ability of local administrative monopoly.Chapter four analyzes the pattern and logic of impact of local administrative monopoly on micro-level resource allocation efficiency. According to a simple mathematic model, when there is rent-seeking and when government considers local citizen's interest, local government will intervene company's operation by local administrative monopoly, which is induce the domestic companies increase output, force the companies outside the region to reduce output. The whole production is bigger than the optional level, which means overinvestment. If several companies and industries provide more welfare to local citizen and government, the local government will increase local administrative monopoly, protect domestic companies. Then, we classify the type of local administrative monopoly, which are discriminative restriction and nondiscriminative restriction, describle the degree of each province's local administrative monopoly, analyze the possible trender of local administrative monopoly:Reduction of discriminative restriction may have positive effect on companies outside the region, while reducing nondicriminative restriction would have the same effect on domestic companies and companies outside the region. Since the economic structure is different, the paths which local government can select to reduce local administrative monopoly are different. Some provinces which have competitive private department, such as Zhejiang, would prefer to deregulation, reducing nondiscriminative restrition, provinces which have stronge foreign enterprises would like to reduce discriminative restriction, the province which neither has stronge private department nor foreign economy will be difficult to reduce local administrative monopoly. Any type of local administrative monopoly would change the price, and the price is higher than optional price. Moreover, local administrative monopoly could make company select site not follow market rule, which lead to unscale economy.Intervening market of local administrative monopoly can be understood as intervening the market mechanism and law. In the view of corporate governance, local administrative monopoly is an external governance mechanism. We focus on the effect of local administrative monopoly on ownership structure of State-owner enterprise, leverage structure and performance of company theoretically and empirically on a LLSV approach. We try to answer the following three questions:first, how local administrative monopoly affects the ownership structure of company? Since SOEs is very debatable in China, we concern the ownership structure of SOEs.we also give some suggestion on reform of SOEs. Second, how local administrative monopoly impact the leverage structure? We analyze the China's credit discrimination. At last, how local administrative monopoly impacts governance mechanism and performance of the company? Chapter five to chapter seven will answer the questions.Chapter five analyze how local administrative monopoly impact ownership structure of SOEs, using date of the listing companies from 2004-2006, we find that, the probability of government directly controlling SOEs varies directly to extend of local administrative monopoly. Moreover, shareholding ratio of government also varies directly to local administrative monopoly. In order to advance the reform of SOEs, reducing local administrative monopoly is as important as improving internal governance and privatization.Chapter six explores how local administrative monopoly impact company's liability structure. Empirical analysis indicates that leverage, long term debt ratio and debt-liability ratio are proportional to local administrative monopoly. To some extend, credit discrimination is the result of government intervening credit decision.local administrative monopoly will make SOEs get more credit resource than private department. Credit discrimination will change the pattern that company entering some industry. For example, great SOEs which can get loan easily would enter into capital-intensive industries and resource-based industries. However, mediu-small companies have to enter into labor-intensive industries or industries that competition is intense. Moreover, local administrative monopoly will lead to some financial risk.Chapter seven is on the impact of local administrative monopoly on company's performance. Empirical research indicates that local administrative monopoly has a negative effect on performance. Moreover, local administrative monopoly has a greater negative effect on SOEs than private companies. A small change of local administrative monopoly would impact company performance much. As reform momentum change to institution factors, the role of local administrative monopoly in company's performance would be larger.Chapter eight provide some clues on how to reduce local administrative monopoly. The main suggestion are the following:accelerating the reform of fiscal system, regulate the investment system and financial system, harden the budget constraint of local government; improving the transparence of fiscal payment; accelerating the transition of government function; putting forward reform of the administrative procedures for examination and approval; opening the economic system; improving the assess and check system of local government.The last chapter is the conclusion. On the base of conclusion, we put forword some idea on how to go deep into the research:first, we will enlarge the sample from listing companies to listing companies and mediu-small companies, though this will be difficult, but it is worthwhile. Second, we will try to analyze the impact of local administrative monopoly on micro-level resource allocation efficiency from the subject of board scale and structure, company merge market, manager incentives and information disclosure.