Adjustment of State Owned and Foreign-Funded Enterprises in China to economic reforms,1980s-2007: a logistic smooth transition regression (LSTR) approach

This paper applies a logistic smooth transition regression approach to the estimation of a homogenous aggregate value added production function of the State Owned (SOE) and Foreign-Funded Enterprises (FFE) in China, 1980s-2007. The transition associated with the eco- nomic reforms in China is estimated applying a curvilinear logistic function, where the speed and the timing of the transition are endoge- nously determined by the data. We ï¬nd high but gradually declining markups in both SOEs and FFEs during the early stages of the ad- justment, with SOEs having a much larger scale and market size than the FFEs. However, over the transition process, returns to scale in industrial SOEs dropped sharply. For both FFEs and SOEs the tran- sition is slow, with a midpoint about 7 and 14 years, respectively. We ï¬nd signiï¬cant increase of TFP growth rate for both FFEs and SOEs, by 0.1436 and 0.1971, respectively.