Evaluation and prediction on resource misallocation of energy industry in China

Based on the CES production function, the traditional Hsieh-Klenow model was expanded to measure misallocation indexes. Taking the data of five subsectors of China's energy industry during 2002-2021 as a sample, the elasticity coefficients of each input to output are estimated and the total misallocation index and subfactor misallocation index of each subsector are evaluated and predicted. The results show that the distortion coefficients of labor, capital and intermediate inputs are mostly positive. In descending order, they are labor, capital and intermediate inputs distortion indexes. Labor resources are over-allocated, while the latter two are under-allocated. From 2002 to 2021, resource allocation efficiencies of subsectors in the energy industry are low, and annual total misallocation is as high as 29.3%. Among them, misallocating intermediate inputs is the primary cause of misallocating overall resources. In the next few years, capital misallocation will deteriorate significantly compared with the other inputs, and it is predicted that the efficiency loss will be as high as 48.8% in 2026.