Economic growth and multi-tasking by state-owned enterprises: An analytic framework and empirical study based on Chinese provincial data

By preventing large-scale unemployment during China's economic transition, state-owned enterprises (SOEs) helped maintain social stability, which supported the development of non-state sectors through a positive externality. Yet this burden reduced the productive efficiency of SOEs. Using a simple framework with two sectors, our paper decomposes the conflicting contributions of SOEs (lower efficiency but enhanced stability) to regional economic growth during 1992-2007. We find that productive efficiency in the state sector was lower than in other sectors and identify a significant positive externality that supported non-state sectors. Since these two effects offset each other, the contribution of SOEs to economic growth in China during our sample time frame was not significantly different from that of non-state enterprises.