Investment dynamics and capital distortion: State and non-state firms in China |
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Affiliation: | Department of Economics, Suffolk University, Boston, MA 02108, United States |
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Abstract: | This paper studies investment dynamics in Chinese manufacturing firms. The analysis estimates capital adjustment costs and uncovers capital distortion in state and non-state firms. There is strong evidence of quadratic adjustment cost and distortion in capital price for both types of firms. The capital distortion is a major source of capital misallocation in Chinese firms. Completely removing the distortion would increase aggregate total factor productivity (TFP) by 18–29%. |
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Keywords: | Capital adjustment cost Capital distortion Aggregate TFP China |
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