2007年-世界发展银行全球_Incremental_Reform_and_Distortions_in_Chinas_Product_and_Factor_Markets_21页_365kb

Summary of "Incremental Reform and Distortions in China's Product and Factor Markets"

Core Content

This article examines the evolution of market distortions in China's product and factor markets over the past 25 years, focusing on how reforms have affected market integration and the shift of rent-seeking behavior across sectors. The study argues that while product markets have become more integrated due to deepening reforms, capital markets remain fragmented, suggesting that distortions have shifted from one sector to another.

Main Points

• Economic Reform and Efficiency: China's economic reforms since the late 1970s have led to significant efficiency gains and rapid growth. However, these reforms have not been fully complete, leading to persistent market distortions.

• Product Market Integration:

  • Despite Young's (2000) warning about increasing market fragmentation, empirical evidence shows that China's product markets have become more integrated over time.
  • Regional protection measures have declined, and output prices have become more aligned across regions.
  • Product market integration follows a U-shaped trend, with initial convergence followed by divergence, which coincides with the central government's efforts to remove trade barriers.
  • The convergence of output shares in the early 1990s and subsequent divergence indicate a shift from fragmentation to integration.

• Factor Market Distortions:

  • Labor Market: The hukou system initially created a rigid labor market, but reforms have gradually increased labor mobility, especially from rural to urban areas. However, significant segmentation still exists, with rural migrants facing discrimination and higher costs in accessing urban services.
  • Capital Market: Capital markets have become more fragmented, as evidenced by divergent marginal returns to capital across provinces. This suggests that the efficiency gains from earlier reforms in product and labor markets have not been fully realized in the capital market.
  • The article highlights that capital market distortions persist due to local government interventions, such as using land as collateral for loans, which restrict capital mobility.

• Shift of Rent-Seeking Behavior: As product and labor market reforms have squeezed out rent-seeking opportunities, these behaviors have shifted to the capital market. This indicates that while reforms have improved some markets, they have also created new areas of inefficiency and distortion.

• Empirical Analysis:

  • The study uses a panel dataset of 32 industries across 29 provinces to analyze regional variations in productivity.
  • It estimates production functions for four sectors (urban industry, urban services, agriculture, and rural nonfarm) to quantify the marginal products of capital and labor.
  • Results show that labor markets are becoming more integrated, while capital markets remain fragmented.

Key Information

• Institutional Reforms:

  • Fiscal decentralization in the 1980s and 1990s led to increased regional competition and rent-seeking behavior.
  • The hukou system was gradually relaxed, allowing more rural-to-urban migration.
  • Banking reforms in the late 1970s and early 1990s aimed to increase market orientation and reduce local control, but fragmentation in capital markets persists.

• Data and Methodology:

  • The article uses provincial time series data for 1978–2001 and panel data for 32 industries.
  • It calculates labor and capital productivity as GDP per unit of labor or capital.
  • Two specifications of production functions are used to estimate factor market integration: one with time trends and another with year dummies.

• Empirical Findings:

  • Labor productivity has increased across sectors, especially in urban industry and rural nonfarm.
  • Capital productivity has shown more regional disparities, with the capital market becoming increasingly fragmented.
  • The standard deviation of GDP per capita in different sectors indicates a more uneven spatial distribution of economic activities over time.

• Policy Implications:

  • Further reforms are needed in the capital market to reduce fragmentation and improve efficiency.
  • The study suggests that Young's (2000) argument about the persistence of distortions in partially reformed economies is still relevant, but the nature of these distortions has changed.

Conclusion

The article concludes that while China's product and labor markets have seen improvements in integration, capital markets remain distorted. The shift of rent-seeking behavior from product and labor markets to capital markets underscores the need for continued reform in the financial sector to achieve more balanced and efficient resource allocation. The findings highlight the importance of a comprehensive approach to market integration, considering both product and factor markets over a long time horizon.