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Recasting the Iron Rice Bowl: The Reform of China's State Owned Enterprises

Jun 2015
Working Paper
551
Daniel Berkowitz, Hong Ma, Shuichiro Nishioka
Following the enactment of reforms in the mid-1990s China's state owned enterprises (SOEs) became more profitable. Using theoretical insights from Azmat, Manning and Van Reenen (2012) and Karabarbounis and Neiman (2014) and econometric methods in De Loecker and Warzynski (2012) this paper finds that SOE restructuring was nevertheless limited. SOEs became more profitable because their cost of capital fell and their capital-labor elasticity of substitution generally exceeded unity, and also because they were under less political pressure to hire excess labor. Moreover, SOE productivity lagged foreign and private firms.
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