Social Sciences in China (Chinese Edition)

No.4, 2017

 

Dynamic Evolution of Resource Allocation Efficiency in China: A New Approach Incorporating Energy Factors

(Abstract)

 

Chen Shiyi and Chen Dengke

 

We incorporated energy factors into our theoretical analytical framework to construct three dimensional “region-sector-time” input-output panel data from 1998 to 2013 and extend research on the dynamic evolution of Chinese resource allocation efficiency and its decomposition to the most recent point in time following the outbreak of the international financial crisis. Our findings show that despite the continuing growth of total factor productivity in China, resource allocation efficiency was relatively low. Distortions in resource allocation led to an average fall of 42.7% in total factor productivity from 1998 to 2013. The expansion of heavy industry after 2003 and the international financial crisis of 2008 worsened the degree of distortion, which was 12% higher when China was affected by the crisis than at other times. However, the degree of resource allocation distortion has decreased somewhat in the “new normal” state of the Chinese economy. The decomposition of resource allocation distortion on the basis of a “counter factual” strategy shows that inter-regional and inter-sectoral distortions can explain 51.6% and 48.4% of total distortion respectively, while capital, labor and energy factors contributed 43.8%, 21.2% and 36.1% to total distortion respectively. In recent years, energy distortion has overtaken capital distortion to become a primary contributor to China’s resource allocation distortion. This warrants urgent attention.