What Effect does the Size of the State-Owned Sector Have on Regional Growth in China?

Abstract

This paper tests the contributions of the size of state-owned enterprises as a determinant of China's economic growth. The methodology is discussed in papers by Levine and Renelt (1992) and Sala-i-Martin (1997). We estimate regressions with growth of output and total factor productivity as the dependent variable and a variety of other factors, including measures of the size of the state-run sector, as regressors. We find that controlling for a variety of other factors, the greater the importance of state owned enterprises, as measured by the proportion of total industrial production they produce, the lower the provincial growth rate. The average estimate is that a decrease in the SOE share of industrial production by ten percentage points increases real GDP growth the following year by 1.14%. The average impacts of a reduction in the SOE share in employment are smaller in absolute magnitude and different for large provinces than they are for small ones. Large provinces actually have higher growth rates if this share rises, while smaller provinces have higher growth rates when it falls.