Gang Zhang (Cheung Kong Graduate School of Business) - Structural Misallocation in China

BOFIT-seminarier

BOFIT Seminar - Gang Zhang (Cheung Kong Graduate School of Business) - Structural Misallocation in China

Abstract
This paper examines how China's quota system for developed-land distribution has led to structural resource misallocation. Since 2003, land quotas have been reallocated from developed to less-developed regions, forcing the latter to engage in large-scale borrowing through local government financing vehicles (LGFVs). We show that this policy, aimed at reducing regional disparities, redirected credit to LGFVs through market forces rather than administrative orders, while crowding out private firms and increasing their borrowing costs. Consequently, other resources, such as physical capital and human talent, were also misallocated. We develop a general equilibrium model to quantify how much of this misallocation contributed to the economic growth slowdown since the 2010s.

 

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