Factor price distortion among regions in China and its influence on China’s economic growth

Abstract

Factor price distortions and resource misallocation are important sources of productivity differences between regions. Promoting the free flow of factors of production is conducive to giving full play to the decisive role of the market in allocating resources, which is crucial to helping a country’s economy develop in a high-quality and sustainable manner. This paper proposes a new approach to measuring factor market distortions and establishes the relationship between factor price distortions and a country’s economic growth. This paper examines the resource misallocation and efficiency loss of 31 provinces in China from 2004 to 2020, and proposes an analytical framework for resource misallocation among regions, with which the Total Factor Productivity (TFP) and the factor price distortion of provinces in China are calculated. The calculation results indicate that the TFP of China’s provinces gradually declines from the eastern coast to the western inland. The resource allocation efficiency in the eastern and central areas is higher than that in the western areas, so is the factor price, and its distortion causes nearly 6% of loss of output value in China. China’s economic growth is still reliant on the increase of factor input and technological development and the improvement of resource allocation efficiency has no significant effect on growth.

Urban innovation, heterogeneous environmental regulations and haze reduction effects–evidence from pilot policies of innovative cities

“…The level of foreign direct investment (fdi − pop): Referring to Yang (2023), using the amount of foreign investment actually utilized by each city in the current year to express the foreign capital use. Industrial agglomeration level (co): references are made to Chen et al (2016) and Yang (2023) to measure the level of industrial synergistic agglomeration in 282 cities above the prefecture level nationwide by summing the number of mining and manufacturing employment and the number of employments in productive services.…”

Measurement and analysis of the distortion of factor prices in China

“…Based on the generalization of cost models, Chinese scholars have investigated the impact of factor market distortions on economic efficiency. They argue that labor compensation in China is generally underestimated, while the compensation for capital and energy factors is artificially inflated [ 44 – 46 ]. Additionally, besides the aforementioned measures of price distortion, other methods include: model approaches, indicator decomposition methods, and benchmarking analysis.…”