Excess Investment and Efficiency Loss During Reforms: The Case of Provincial-level Fixed-Asset Investment in People's Republic of China

Publication | October 2003
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This study measures and evaluates inefficiency of aggregate investment in a transitional economy, in this case, the People's Republic of China.

A method is proposed to estimate efficiency of aggregate investment in a transitional economy, using provincial panel data from the People's Republic of China (PRC) as an experimental case. Inefficiency is defined on the basis of disequilibrium investment. It is further decomposed into allocative and production inefficiency. Allocative inefficiency is related to policy/institutional factors. The main findings are: the PRC investment demand hardly responds to capital pricing signals, whereas it is strongly receptive to expansionary fiscal policies and interprovincial network effect. Once institutional factors are separated out, there are clear signs of increasing allocative efficiency and receding growth in regional investment disparity. The estimates on production efficiency are broadly in line with regional development.

Contents

  • Abstract
  • Introduction
  • Investment Inefficiency: A Conceptual Framework
  • Allocative Inefficiency and Institutional Constraints
  • Empirical Results
  • Conclusion
  • Appendix
  • References

Additional Details

Authors
Type
Series
Subjects
  • Economics
  • Finance sector development
Countries
  • China, People's Republic of
ISSN
  • 1655-5252 (Print)

Published Version

Qin, Duo and Haiyan Song. 2008. "Sources of Investment Inefficiency: The Case of Fixed-Asset Investment in China." Journal of Development Economics 90 (1): 94–105. https://doi.org/10.1016/j.jdeveco.2008.06.001.

Note: ADB recognizes "China" as the People's Republic of China.

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