SHADOW FACTOR PRICE CONVERGENCE AND THE RESPONSE OF CHINESE STATE-OWNED CONSTRUCTION ENTERPRISES TO REFORM

A generalized (nonminimum or shadow) cost function is used to evaluate the response of Chinese state-owned construction enterprises to economic reforms from 1985 to 1991. Generalized cost function estimates are used to calculate the variances of the shadow factor price ratios that characterize price efficiency, and these variances are regressed against reform variables to determine whether convergence took place. There is some evidence of improved technical efficiency, and competitive bidding reforms appear to have had some effect in improving factor price efficiency. However, there is no general evidence for the convergence of factor price inefficiency, and the general response to reform is either negative, insignificant, or inconsistent.