Enterprise Productivity and Efficiency: When is Up Really Down?

Journal Of Comparative Economics, Vol. 24, No. 3, June 1997

Posted: 23 Oct 1997

See all articles by Chong-En Bai

Chong-En Bai

The University of Hong Kong - School of Economics and Finance; University of Michigan - William Davidson Institute

David D. Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management

Abstract

A substantial body of literature has documented impressive total factor productivity (TFP) growth in China's state owned enterprises (SOEs) during the period of China's enterprise reform. Such growth rates have been used to support the view that China's reforms of SOEs have been highly successful. In this paper, we question the validity of using TFP growth rates as a "bottom line" measure of performance. In the spirit of a counter-example, we use a simple model to show that when firms are not profit maximizers for whatever reason, higher productivity may actually lead to greater allocative distortion, lower profits, and lower economic efficiency. On the basis of existing evidence, we argue that these conditions held for many Chinese state enterprises during the reform.

JEL Classification: O11, O47, O53

Suggested Citation

Bai, Chong-En and Li, David Daokui and Wang, Yijiang, Enterprise Productivity and Efficiency: When is Up Really Down?. Journal Of Comparative Economics, Vol. 24, No. 3, June 1997, Available at SSRN: https://ssrn.com/abstract=41983

Chong-En Bai (Contact Author)

The University of Hong Kong - School of Economics and Finance ( email )

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University of Michigan - William Davidson Institute ( email )

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David Daokui Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

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China
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(852) 2358-2084 (Fax)

HOME PAGE: http://home.ust.hk/~davidli

Yijiang Wang

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Industrial Relations Center
Minneapolis, MN 55455
United States
612-624-6814 (Phone)
612-624-8360 (Fax)

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