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Factor market distortion correction, resource reallocation and potential productivity gains: An empirical study on China's heavy industry sector

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  • Yang, Mian
  • Yang, Fuxia
  • Sun, Chuanwang

Abstract

In this study, we develop a novel analysis framework for evaluating the effects of resource reallocation from the correction of factor market distortion (FMD) on total factor productivity (TFP) gains. We first measure FMD in China's heavy industry sector from 1995 to 2012, and then investigate the effects of resource reallocation from FMD correction by using the price elasticity of factor demands as a link, along with its potential TFP gains. The results indicate that: (1) Taking the price of capital as a reference, the prices of labour and energy in the study period were relatively higher to different extents. (2) If current FMD were fully corrected, the labour input in China's heavy industry sector would increase by 25.37%, whereas capital and energy inputs would decrease by 18.51% and 10.57%, respectively. (3) The resource reallocation effects resulting from current FMD correction will bring about significant TFP improvement (by 8.55%) in China's heavy industry sector, and there are evident industrial differences and stage characteristics for these promoting effects.

Suggested Citation

  • Yang, Mian & Yang, Fuxia & Sun, Chuanwang, 2018. "Factor market distortion correction, resource reallocation and potential productivity gains: An empirical study on China's heavy industry sector," Energy Economics, Elsevier, vol. 69(C), pages 270-279.
    • Handle: RePEc:eee:eneeco:v:69:y:2018:i:c:p:270-279
    DOI: 10.1016/j.eneco.2017.11.021
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    More about this item

    Keywords

    Factor market distortion; Resource misallocation; Total factor productivity; Price elasticity of factor demands; Heavy industry sector;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P23 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Factor and Product Markets; Industry Studies; Population
    • P42 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Productive Enterprises; Factor and Product Markets; Prices
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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