Policy and misallocation: Evidence from Chinese firm-level data

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4 Scopus citations

Abstract

Using a rich dataset of Chinese firms, we investigate the effect of industrial policies on resource misallocation. Our difference-in-difference model estimates provide evidence that government policies increased the dispersion of revenue productivity across firms in four-digit industries targeted for support relative to other industries, suggesting a negative impact on aggregate TFP. Estimates of a changes-in-changes model reveal that the policies had a heterogeneous impact across the productivity distribution of firms in supported industries. Furthermore, we show that the heightened misallocation is related to the way in which the Chinese government doled out support through subsidies for a subset of firms.

Original languageEnglish
Article number104260
JournalEuropean Economic Review
Volume149
DOIs
StatePublished - Oct 2022

Bibliographical note

Publisher Copyright:
© 2022 The Author(s)

Keywords

  • China
  • Misallocation
  • Total factor productivity

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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