Decentralization and its impact on electric power sector. An empirical study for a centrally planned economy: China

Haijiang Wang, University of Pennsylvania


The primary hypothesis in this dissertation is that decentralization has had a positive effect on economic growth/efficiency in the industrial sector in general. A second hypothesis is that this decentralization has a positive impact on the power industry in particular. By using cross-regional data, three complementary production function and econometric models are used to test the hypotheses. First, production functions are made by estimating the elasticity of each input component from the state and nonstate enterprises, and comparing them. The second analysis involves specifying and estimating factor productivity and total factor productivity (TFP), which allows for a comparison of the technical and resource allocation efficiencies. The third approach creates a modified Cobb-Douglas production function, which includes all the traditional factor inputs and "nontraditional" inputs of government policies. The empirical findings show that the level of economic development in region is not a determinate factor affecting decentralization. There is no close linkage between the stage-of-development and decentralization. The decentralized regions have exploited the investment and trade advantages of their location, but their economic successes result from internal motivation, and do not depend only on external promotion. Nonstate enterprises contributed the most to rapid industrial growth. Nonstate enterprises also show allocative efficiency and have a higher growth rate of TFP than state enterprises. Decentralization policy is a key variable to increase production efficiency in industrial sector. Improving efficiency also relies on indirect policy instruments, such as taxes and monetary policy. Decentralization policy in the electric power industry produced output growth, and electricity supply and demand has balanced only in decentralized regions. This policy in the power industry did not induce the same production efficiency gains as it did in the industrial sector, because competition remains largely absent in the power industry. It appears that further institutional change is necessary, including ownership diversification of electricity generation and marginal pricing of electricity distribution. As the dissertation makes clear, market determined price has begun to dominate the electricity consumption in China, reflecting the fact that electricity is currently valued very highly by end-users.

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Recommended Citation

Wang, Haijiang, "Decentralization and its impact on electric power sector. An empirical study for a centrally planned economy: China" (1993). Dissertations available from ProQuest. AAI9413926.