The Effect Of Factor Market Distortion On Profit Margin Of China’s Export Firm

Since the reform and opening policy in 1970s, China’s market has shifted from planned economy to market economy, and it has made a series of great achievements. But on the other hand, as time went by, under the background of economic transformation we also found some problems in the Chinese market, and the factor market distortion is one of the important problems in the process of reform. In order to maintain rapid economic growth, China’s local governments often intentionally depress the price of the basic factors such as capital, labor, environment, and this will lead to factor market distortion. Factor market distortion makes the enterprise carry on the business operation at a relatively low cost, but the enterprise need to pay the rent cost. At the same time, the factor market distortions may reduce the enthusiasm of enterprises to carry out research and development, lower export price of the product, and finally affect its profitability.Based on literature review, we start from typical fact of the factor market distortions in our country, using 1998-2009 data of export enterprises in our country to study the export enterprise’s profitability. First, using the marketization index of product market and factor market to measure the factor market distortion degree of China’s provinces and regions; Second, analyzing the determinants of China’s export enterprise profit margins and its change trend of profit margins, and then using panel regression model to carry on the empirical analysis; Third, according to the empirical results, put forward the policy suggestions.Through the perspective of production efficiency, using the empirical model to explore the influence of factor market distortion on export enterprise profit margins. We get the following conclusions:(1) Factor market distortion has negative effect on the profits of China’s export enterprises; (2) the total factor productivity plays a positive role on profit margins; (3) the total factor productivity has weakened the effect of factor market distortion on the profit margins.