Industry regulation, competition, and the dynamics of productivity growth: evidence from China’s iron and steel industry

Abstract

This study aims to investigate the characteristics of the efficient evolution of China’s iron and steel industry against the backdrop of limited openness and regulation and to discuss the important effects of regulatory policy and total factor productivity (TFP) of China’s iron and steel industry. The method adopted the Cobb–Douglas production function combined with a semi-parametric method to decompose productivity. This study based on the micro-level dataset of iron and steel enterprises in the database of China’s industrial enterprises between 1998 and 2007 that investigated the intrinsic correlation among corporate entry and exit, market competition of existing enterprises, and TFP growth in the iron and steel industry. The results of the research show that the entry-exit would promote the growth of the aggregate productivity, while the low efficiency of resource allocation would significantly inhibit the TFP growth. The basic conclusion is that, with substantial government intervention in enterprise investments, market competition may not promote optimal resource allocation efficiency in China’s iron and steel industry, but make the allocation less efficient.

Keywords

• productivity dynamics
• industry regulation
• market competition
• China