Location: 368A Heady Hall
Description: Zheng Michael Song (University of Chicago Booth School of Business) "Grasp the Large, Let Go of the Small: The Transformation of the State Sector in China"
Abstract: Starting in the late 1990s, China undertook a dramatic transformation of the large number of firms under state control. Most small state-owned enterprises (SOEs) were privatized or closed. In contrast, large SOEs were corporatized and merged into large industrial groups under the control of the Chinese state. Detailed firm level data shows that from 1998 to 2007, (i) exit SOEs had smaller size and lower labor and capital productivity than the corporatized SOEs; (ii) labor productivity of SOEs were quickly converging to that of privately owned firms, while the convergence of capital productivity was less dramatic; (iii) total factor productivity (TFP) growth of SOEs was substantially faster than that of private firms. We find suggestive evidence that competition within SOEs and reduce of redundant workers are important for the convergence of TFP and labor productivity. The overall welfare gain of the reforms turns out to be subtle. Despite its great achievement in growing TFP and reducing labor distortions, "Grasp the Large" has surprisingly small or even negative effects on aggregate output.
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