Sources of investment inefficiency: The case of fixed-asset investment in China

Duo Qin, Haiyan Song

Research output: Journal article publicationJournal articleAcademic researchpeer-review

34 Citations (Scopus)

Abstract

This study attempts to measure the inefficiency associated with aggregate investment in a transitional economy. The inefficiency is decomposed into allocative and technical inefficiency based on standard production theory. Allocative inefficiency is measured by the deviation of actual investment from the theoretically desired investment demand. Institutional factors are then identified as part of the driving force of the deviation. 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; the tendency of over-investment remains, even with signs of increasing allocative efficiency and improving technical efficiency.
Original languageEnglish
Pages (from-to)94-105
Number of pages12
JournalJournal of Development Economics
Volume90
Issue number1
DOIs
Publication statusPublished - 1 Sep 2009

Keywords

  • Efficiency
  • Over-investment
  • Soft-budget constraint

ASJC Scopus subject areas

  • Development
  • Economics and Econometrics

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