Sources of Investment Inefficiency: The Case of Fixed-Asset Investment in China

Duo Qin and Haiyan Song
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Haiyan Song: Hong Kong Polytechnic University

No 584, Working Papers from Queen Mary University of London, School of Economics and Finance

Abstract: This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and production inefficiency based on standard production theory. Allocative inefficiency is measured by disequilibrium investment demand. Institutional factors are then taken into consideration as possible explanatory variables of the disequilibrium. The resulting model is applied to Chinese provincial panel data. The main findings are: Chinese investment demand is strongly receptive to expansionary fiscal policies and inter-provincial network effects; and although there are signs of increasing allocative efficiency, the tendency of over-investment remains, even with improvements in production efficiency.

Keywords: Over-investment; Efficiency; Disequilibrium; Soft-budget constraint (search for similar items in EconPapers)
JEL-codes: C23 E22 E62 H74 P3 (search for similar items in EconPapers)
Date: 2007-01-01
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Citations: View citations in EconPapers (2)

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Journal Article: Sources of investment inefficiency: The case of fixed-asset investment in China (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:584

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