Biased Technological Progress, Factor Price Distortion And Factor Allocating Efficiency in China

Abstract

Abstract This paper constructs a two-regime model with factor flowing, studies the long-term factor allocating structure when there exists differences in biased technological progress between regions, and analyzed the influence of factor price distortion as an endogenous obstacle on factor allocating efficiency. Further, this paper adopts a state space model to estimate the production elasticity of capital and labor of the C-D production function, which in turn describes the time-varying substitution characteristics between labor and capital, and found that the path of Chinese technological progress is gradually shifting from capital biased to labor biased. Finally, in order to capture the improvement in factor allocating efficiency caused by factor reallocating cross regions, this article constructs a new factor allocating efficiency indicator, empirically verifies the relationship between biased technological progress, factor price distortions and factor allocating efficiency by using Chinese provincial-level macro data as well as China Industry Business Performance Database in the period of 2004–2015. On average, for every 1% increase in the biased technology indicator, factor allocating efficiency increases by about 28%; for every 1% increase in the degree of labor price negative distortion, factor allocating efficiency loses by about 22%; and for every 1% increase in the degree of capital price negative distortion, factor allocating efficiency loses by about 4.1%. Substantial heterogeneity is also observed, such as regional heterogeneity, differences in house prices, and degree of marketization. JEL Classification: L52; R52; R12