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Allocation of resources within subgroups of an industry: a case study in the Chinese industrial sector

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Abstract

Facing bottlenecks of economic growth, two important policy concerns of the Chinese government are the regional fragmentation and ownership distortion. This paper extends the method of measuring structural efficiency of a group of firms to the existence of subgroups of firms to evaluate such issue. Without knowing the “true” prices, we argue that there is an output-oriented solution to the economy. We then apply this new method to the Chinese industrial sector from 2005 to 2014 as a case study. We found that resources were allocated efficiently among different regions but not within regions. In contrast, resources were allocated efficiently within different ownerships but not among ownerships. Specifically, by eliminating inefficient resource allocation among different ownerships, outputs of the whole industrial sector could be increased by 21% of the observed levels. These two findings cannot be derived directly from other existing methods. Our results advocate different directions to conduct further regional and ownership reforms in China.

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Notes

  1. IMF World Economic Outlook Databases.

  2. China is classified as an upper-middle-income country by the World Bank. https://datahelpdesk.worldbank.org/knowledgebase/articles/906519-world-bank-country-and-lending-groups

  3. 6 provinces (Gansu, Guizhou, Qinghai, Shaanxi, Sichuan, and Yunnan), 5 autonomous regions (Guangxi, Inner Mongolia, Ningxia, Tibet, and Xinjiang), and 1 municipality (Chongqing).

  4. If this group includes all firms in an industry, one can call it “industry”.

  5. Nesterenko and Zelenyuk (2007) called \(\Im ^g\) the “group potential technology”. The number of firms is fixed in a group. This is in contrast to the term “industry technology” defined by Peyrache (2013) in which the number of firms is variable.

  6. Lozano and Villa (2004) called this centralized decision maker.

  7. Nesterenko and Zelenyuk (2007) called this term “group potential revenue efficiency”.

  8. Since the technically efficiency output vectors \({\boldsymbol{q}}_k^{te}\) can be derived from (A0, B0) for all k, the production pattern under technical efficiency Bte is not included as an argument of ATE. The same reason applies to (5) and (6). For further explanatiions of these aggregate measures, please see Li and Ng (1995).

  9. Note that Φg depends on the aggregate inputs, aggregate outputs and output prices only whereas RAEg, AAEg and ATEg are all affected by the allocation of inputs and outputs.

  10. Nesterenko and Zelenyuk (2007) introduced another decomposition of the revenue structural efficiency in which a component may contain both actions within individual firms without input reallocation and actions with input allocation.

  11. There are different ways to solve the problem of unknown \({\boldsymbol{p}}^g\). If part of the price information is known, one may use, for example, Kuosmanen and Post (2001)’s method to derive the upper and lower bounds of efficiency measures based on the incomplete price information.

  12. Data for 2012 were not available.

  13. Note that for 1 output case: (i) all efficiency measures are price independent, and (ii) \(AAE = 1\) and it is not shown.

  14. Probably it is related to the global financial crisis in 2008, but this is not our main focus here.

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Authors and Affiliations

  1. Department of Economics, Hong Kong Baptist University, Hong Kong, Hong Kong

    Chun-kei Tsang & Sung-ko Li

  2. Business, Economic and Public Policy Research Centre, Hong Kong Shue Yan University, Hong Kong, Hong Kong

    Chun-kei Tsang

Authors
  1. Chun-kei Tsang
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  2. Sung-ko Li
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Correspondence to Chun-kei Tsang.

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Appendix

Appendix

Table 7 Efficiency scores and their decompositions for China industrial sector by different region-ownership classifications (Decomposition 2 with 2-levels)
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Tsang, Ck., Li, Sk. Allocation of resources within subgroups of an industry: a case study in the Chinese industrial sector. J Prod Anal 53, 125–139 (2020). https://doi.org/10.1007/s11123-019-00563-8

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