Economics, Econometrics and Finance
3 years ago

Financial Friction in China Hinders Growth, But Fix Could Boost Welfare.

SSRN Electronic Journal
Provincial Trade, Financial Friction and Misallocation in China
Ohyun Kwon, Belton M. Fleisher, William McGuire, Min Zhao

Paper Summary

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The article examines how financial problems in China affect the distribution of labor and capital. They found that private companies face credit limits, leading to inefficient use of capital compared to state-owned firms. By analyzing differences in market shares and rental rates, they developed a way to measure these financial issues. Their results show that reducing financial friction in China could increase welfare by 3.9%.