Industrial policy and resource allocation: implications on China's participation in globalization

China's industrial policy regime has played an important role in the countr y's economic development and participation in the world economy. This paper examines the effect of this regime on cross-industry resource allocation i n three aspects: incentives, openness of trade and investment, and allocati ve efficiency. The results indicate effectiveness of industrial policy in o ffering incentives and controlling market openness in line with the planned priority. Evidence in cross-industry resource allocation, however, suggest s significant efficiency gains are yet to be obtained from further particip ation in globalization. (C) 2001 Elsevier Science Inc. All rights reserved.