Heterogeneous strategy and performance decomposition of regional industries in China: From the perspective of resource misallocation

Abstract

The rapid expansion of China's industrial sector has been accompanied by energy consumption and environmental pollution. Accurately identifying the sources of inefficiency of industrial sector is crucial for achieving sustainable development. To address this issue, this study develops a novel decomposition approach that combines the concepts of natural and managerial disposability with an aggregate directional distance function approach to measure the performance of regional industries in China from 2006 to 2019. In the proposed approach, the overall inefficiency is decomposed into technical inefficiency and structural inefficiency. The latter component, which captures inefficiency associated with resource misallocation within a country, is further divided into mix and scale elements. The results show that there remains much room for potential improvement in both the operational and environmental performance of China's industrial system, particularly in the central area. Furthermore, structural inefficiency is the primary contributor to the overall inefficiency of Chinese industry under natural disposability, whereas technical inefficiency appears as the main source of the inefficiency under managerial disposability. The results also reveal great disparities in terms of the overall inefficiency and the sources of inefficiency of Chinese industrial sector among regions between different mitigation strategies. Given the substantial structural effect on the performance of Chinese industries across regions, it is necessary to accelerate the establishment of market mechanisms to promote efficient allocation of resources.