A Research On The Effects Of Factor Price Distortion On Industrial Overcapacity

In recent years, since the increased competition of international trade and domestic economy downturn, our country is facing a new round of overcapacity, especially in the industrial field. Compared with before, this round of overcapacity is different, not only occur in some traditional industries, but also occur in emerging industries represented by photovoltaic industry. Based on this background, this paper establishes the connection between factor price distortion and industrial overcapacity through the formation mechanism of sunk costs and exit barriers, and emphatically analyzes the effect of negative distorting of capital and land price on industrial overcapacity.Under the double constraints of fiscal system and performance appraisal mechanism, local governments are motivated to distort factor price. And because of the incompleteness of factor market, local governments have the ability of distorting factor price. Negative distortion of factor price make potential enterprises excessive entry and reigning enterprises excessive investment, also raise the exit barriers of unprofitable enterprises, thus lead to overcapacity. Fudenberg-Tirole model assumes that local governments deliberately set up exit barriers for maximizing self-interests. It put the duration of the exit barrier as the only strategy variable, by solving the model, conclude that there is a positive correlation between the strength of exit barriers which local governments establish and soft constraint of financial budget, governments’direct income, the extent of influence of enterprises operation state on government achievement.In the empirical analysis, firstly use the production function method to calculate industrial capacity utilization and degree of factor price distortion of28regions in China from2002to2011. The results show that, the regional capacity utilization in our country is presenting a downward trend year by year, the capital and land price is highly distorted, but the distortion degree of labor price is low. Then based on the measurement results, carry on empirical analysis about the effect of factor price distortion on the industrial capacity utilization. The results show that the capital, labor, land price distortion and total distortion of factor price all have significant negative effects on capacity utilization. Finally, based on theoretical and empirical analysis, puts forward corresponding suggestions.