THESIS
2021
1 online resource (xi, 107 pages) : illustrations (some color)
Abstract
Chapter 1: The favorable policy treatments towards SOEs in the Chinese economy
distort the upstream output prices. Because of the vertical market structure, it deteriorates
the resource misallocation in the downstream manufacturing sectors. We explore
the implication of upstream price distortion on downstream resource allocation efficiency
in this paper. Based on the matched datasets of firm-level characteristics and prices, we
first identify the price difference between SOEs and non-SOEs in China, especially in the
upstream sector. We then show that this price distortion affects the resource allocation
in the downstream sectors, and the gross output gain from upstream-produced input reallocation
is 5.48%, comparable to that of labor or capital. Empirical exercises show the
overall dist...[
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Chapter 1: The favorable policy treatments towards SOEs in the Chinese economy
distort the upstream output prices. Because of the vertical market structure, it deteriorates
the resource misallocation in the downstream manufacturing sectors. We explore
the implication of upstream price distortion on downstream resource allocation efficiency
in this paper. Based on the matched datasets of firm-level characteristics and prices, we
first identify the price difference between SOEs and non-SOEs in China, especially in the
upstream sector. We then show that this price distortion affects the resource allocation
in the downstream sectors, and the gross output gain from upstream-produced input reallocation
is 5.48%, comparable to that of labor or capital. Empirical exercises show the
overall distortion changes in both upstream and downstream markets over time, but the
SOE reform only helps to improve the distortion in the downstream sectors. We also
investigate the factors behind the policy distortion and find that good local governance
helps alleviate the price distortions.
Chapter 2: This paper investigates the effect of government policies that reduce the
credit constraint and entry barrier for firms in the Chinese economy quantitatively. To
build a suitable framework for quantitative analysis, we incorporate features of the Chinese
economy into a standard RBC model. These features include the difference in productivity
and asymmetric access to financial markets between state-owned enterprises (SOE) and
domestic private enterprises (DPE) and the vertical production structure discussed in Li
et al. (2015). In particular, we introduce endogenous firm dynamics in both the upstream
and downstream sectors. Quantitative analysis shows that this model can reasonably
explain specific patterns of Chinese business cycles and thus can be used as a benchmark model for policy analysis. Policy experiments show that the output will increase the most
once the entry barrier for private firms in the upstream sector is lowered. A weaker credit
constraint will lead to higher output and a capital reallocation from SOEs to DPEs. The
convergence of the productivity gap will make SOEs prefer to invest in the upstream
sector while the DPEs prefer downstream. These results suggest upstream DPEs are the
most constrained in China.
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