Resource allocation and productivity across provinces in China

The rapid economic development in China has been characterized by levels of productivity very heterogeneous across local areas. This work investigates a previously unexplored aspect of such heterogeneity by assessing the degree of within-industry allocative efficiency across provinces over the period 1998–2007. Using firm-level data on the Chinese manufacturing firms, we measure resource misallocation by computing the within-industry covariance between size and productivity at the provincial level. The results suggest that allocative efficiency varies considerably across areas and that some place-based factors strongly influence the distribution of resources across firms.