Rural regional disparity has now become one of the most concerning problems in China. This paper attempts to show that the inequality is mainly caused by the uneven development of rural collectively owned enterprises (COBs). In the early 1990s, COEs accounted for more than 70percent of rural regional inequality. In order to evaluate the effectiveness of current government policies for lessening regional disparity, we use a data envelopment analysis to measure the efficiency of COEs in the rural areas. The analysis shows that COBs in the eastern region are relatively more efficient than those in the central and western regions. To explain this, the potential sources of the COEs' production efficiency in different provinces are examined in detail. The production efficiency of Chinese COEs is found to he closely related to the employment of a shareholding cooperative system, foreign investment, skilled workers, and a bonus incentive scheme.
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