Resource Misallocation:Problems, Causes And Countermeasures

Misallocation is one of the most important sources of productivity loss. In thisdissertation, we investigate causes, impacts and countermeasures about this problem.In Chapter3, we combine the discussion of resources misallocation into thegrowth accounting framework and develop a method to measure the loss of TFP andoutput caused by factor price distortion. Using this method, we analyze the impact ofresources misallocation of China’s manufacturing sector. We find the loss caused bydistortions is about15%of the total output, and the distortions have not beensignificantly corrected. It seems by correcting distortions, the productivity ofChina’s manufacturing sector can improve significantly.In Chapter4, we explore one of the potential sources of misallocation. We arguethat when firms face the risk of extraction, they will try to pay grease money to reducetheir loss. These efforts may cause endogenous distortions, which may in turn causethe resource misallocation between firms. We find that the extent of this distortion isrelated to the firm’s size and productivity, and the firm with middle size will face themost serious distortion. By simulation, we find misallocation caused by thisendogenous distortion may account for8%TFP loss. And we also find theimprovement of property protection can do little to enhance the productivity when thelevel of property protection is too low or too high. But when there is a middle level ofproperty protection, property protection improvement may enhance the productivity significantly.In Chapter5, we analyze the role of industrial cluster in reduce misallocation. Byusing censes data of1995and2004, we find the development of industrial clustermay help to reduce misallocation significantly. But the government’s interventionmay disrupt this effect.In Chapter6, we give a three stage framework to analyze China’s growth. Anddiscuss some principles and alternative methods to reduce misallocation.