The role of marketization on the linkage between misallocation and productivity dispersion: evidence from china

This paper enriches the misallocation literature by identifying the role of marketization based on China’s manufacturing database. We find that when the effect of misallocation on TFP dispersion is larger than that of market competition, the TFP dispersion of private enterprises tends to increase, misallocation decreases and market competition increases. However, as the dispersion of state-owned enterprises in China decreases, misallocation and market competition both increase.