DOI 10.1007/s11459-005-0006-x RESEARCH ARTICLE Gong Liutang, Xie Danyang Factor Mobility and Dispersion in Marginal Products: A Case on China # Higher Education Press and Springer-Verlag 2006 Abstract This paper examines the efficiency in resource allocation in China. We estimate production functions at the provincial level and use these functions to compute time series for marginal products of capital and labor. We found that dispersion in the marginal product of capital declined from 1970 to 1984 and then became stable afterward, whereas the dispersion in the marginal product of labor declined initially but the trend has been reversed since 1993. We argue that this reversal may indicate any of the following: (1) policy-driven labor migration adding to labor market inefficiency; (2) the presence of increasing returns in labor; and (3) both capital and labor having become mobile since 1993. Keywords inefficiency, resource allocation, Chinese economy JEL Classification O47, R11 Introduction Efficient allocation of productive resources is an important step toward prosperity in any economy. Existing literature has concentrated on the efficiency of resource allocation across industries and has paid little attention to efficiency across provinces or states. Economists have examined provincial- and state-level data, but the typical issue that they address is the convergence of per-capita income [1,2]. Provincial income convergence and regional disparities are studied in Jian et al. [3], Chen and Fleisher [4], and Aziz and Duenwald [5]. The present paper Translated from the Economic Research Journal, 2004, (1) (in Chinese) Gong Liutang ()) Guanghua School of Management, Peking University, Beijing, 100871, PRC E-mail: ltgong@gsm.pku.edu.cn Xie Danyang Department of Economics, The Hong Kong University of Science and Technology, Hong Kong, China Front. Econ. China (2006) 1: 1–13