Financial Repression, Ownership Discrimination and Economic Growth Cumbrance: Mechanism II

This chapter investigates the SOEs’ efficiency losses from the perspective of their negative spillovers to economic growth. In the process of economic transition, SOEs do not only entail efficiency losses in themselves, but also hinder economic growth through financial repression and ownership discrimination. The dragging effect is not apparent because financial resources can leak from the SOE sector to the private sector and private finance develops fast. Using China’s provincial panel data for the period 1985 -2004, we have partially confirmed the theory. The result lends supports to further financial deregulation and SOE reform.