The Factors Market Distortions And Capital Deepening Of Manufacturing Industry

Due to the comparatively slow factor market reform, the contradiction betweeneconomic structure and factor endowment structure is increasingly conspicuous. Oneof that, manufacturing industry of China is in rapid capital deepening and binarycapital deepening with the under the background of overall surplus labor resources, isvery prominent among them. This kind of phenomenon has become a hot topic foracademic research, but the insufficient research of the dynamic mechanism and theeffect is a limitation in this area. So, this paper aims to investigate the reason of rapidcapital deepening and binary capital deepening base on theory of induced technicaltransformation, then analysis whether there is positive feedback phenomenon.This part revolves around three core issues, which are:(1) Factor marketdistortions and Incentive mechanism of capital deepening.(2) If there is a Positivefeedback or negative feedback in the induced process?(3) How The induced processof factor market distortions and capital deepening impact on the economy? This paperargues that, capital-deepening is the result of capital-biased technology choices,co-determined by factor prices and biased technological progress facing enterprisesunder perfect-competitive-market conditions. However, in a distorted market, the‘rigid constaints’ on factor prices are softened, so that enterprise’ factor-biasedtechnology choices are based not completely on the real price ratios between factors,but to some extent on the lure of extra gain from the distortion of the factor market.Meanwhile, factor endowment and technological path-dependence has moldedtechnological progress into a factor-biased pattern, thus generating effects of advanceor suppression, i.e. endogenous stability. In addition, this induced process will alsoapply to external macroeconomic, affect the efficiency of industry and employment.On this basis, the empirical part of this paper validate the theory based on industryenterprises in China, the empirical results shows: in both capital prices and laborprices, there is a negative distortion, where the marginal benefit is greater than the marginal cost, with the distortion ratio in the capital sector being higher, providing thenecessary condition for the development of capital-deepening in China. Then, provedthat the induced effect of factor market distortions is existent, and the induced processproduced the efficiency loss and inhibition of job growth. The result also proves thepositive feedback effect of technology choices as a responses to the ‘soft constraints’imposed by factor-market distortion, by showing the capital-biasedness of technologychoices of Chinese industrial enterprises of various ownership types.