The Effect Of Capital Misallocaiton On China’s Output Efficiency: Comparative Analysis Of Financial Industry And Other Industries

China’s economic growth slows down affected by European debt crisis and U.Srecession, and local government try to publish various stimulus plans in order to reverse thedecline. However, we need to resolve the economic woes from the root cause that theimbalance of investment and the capital misallocation resulted from the governmentinterference to market economy and the monopoly of financial industry.This paper constructs a theoretical framework based on a multi-sector generalequilibrium model with sector-specific frictions in the form of monopoly, decompose theeconomic growth into four parts, that is the change of factor input, sectoral TFP, resourceallocation efficiency and improvement of industry structure. Based on this, I use the paneldata of eight major industries during the period of1978-2010to analyze the contribution ofresource allocation to the economic growth rate of China, then fit the change rate ofproductive efficiency. Besides, this paper divide the resource allocation efficiency into capitaland labor allocation efficiency, focusing on the capital allocation efficiency which is the coreof resource allocation. Under the assumption of full capital mobility across other remainingindustries, I calculate the capital allocation efficiency of financial industry. According to thismethod, this paper also estimates the capital allocation efficiency of other industries,comparing the capital allocation efficiency of financial industry and other industries so as toanalyze whether the monopoly of financial industry is the main reason of capitalmisallocation. At last, I examine the stability of the results using the panel data of nineteenindustries from2004to2010。The empirical results show that:(1)Chinese economic growth maintain ainvestment-driven mode which is led by the factor input, and the contribution of resourceallocation to economic growth is negative in the most of the years but has improved in recentyears;(2)The barrier of resource flow lead to low Chinese productive efficiency coefficientand the reform measures promoting the marketization is beneficial for the improvement ofproductive efficiency;(3)As the core of resource allocation, numerical value and variationtrend of capital allocation efficiency led the resource allocation efficiency, and capitalallocation efficiency turned positive from negative since2005;(4)The monopoly of Chinesefinancial system dominated by the banking system cause the capital misallocation in a greatdegree. With the shareholding reform of state-owned commercial bank, the raise of capitalallocation efficiency in financial industry promote the economic growth rate effectively;(5)The results of nineteen industries are mostly identical with that of eight major industries,proving the stability of above results. According to empirical results, I made some suggestionssuch as developing multilevel financial system which offer services to real economy, breaking the highly monopolized situation of banking system and realizing its service transformation.