Qian (2000) and others suggest that post-1994 tax and banking reforms in China, combined with the development of markets for allocating resources, influenced the economic performance of township-village enterprises (TVEs) and private enterprises (PEs). This paper uses Chinese provincial level data to search for evidence of advantages and/ or disadvantages offered to TVEs and PEs before and after the 1994 reforms. We define a sectoral net income-based measure of overall efficiency and decompose the measure into components that highlight the existence of credit constraints, output target constraints and labour hiring constraints. The results offer empirical support for Qian and others explanation of why private enterprises eventually emerged as the dominant institution for allocating resources in post-1994 rural China.
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The authors have benefited greatly from conversations with Xinshin Diao, Rolf Fare, Shawna Grosskopf, Terry Roe, Jay Coggins and Nori Tauri. They would also like to thank two anonymous reviewers for their helpful comments. Senior authorship not assigned. The authors gratefully acknowledge financial support by the Center for International Food and Agricultural Policy, University of Minnesota, and the Center for Agricultural and Rural Development, Zhejiang University.