Economic and institutional reform packages and their impact on productivity: A case study of Chinese township and village enterprises

In this paper, we investigate the privatization of township and village enterprises (TVEs) in rural China by considering the economic and institutional reform packages and examining their effects on enterprise performance. Using production function analysis, we conclude that the impact of privatization per se is not determined unambiguously because it is indistinguishable from the contribution of technological progress. In addition, we find that market competition is a significant factor in promoting efficiency gains in TVEs. Moreover, the modernization of fiscal and financial institutions in the mid-1990s is shown to be a major proximate cause of privatization and to play an important role in improving enterprise performance through the elimination of the soft-budget regime. We conclude that these reform packages interacted together to generate the economic benefits observed from the privatization of TVEs. Journal of Comparative Economics 34 (1) (2006) 167-190.