| Abstract | In 2002, Chinese government broke the vertical integration of electricity industry by separating the generation from the transmission and distribution segments. The reform of vertical unbundling lost the economies of scope but strengthening the economies of specialization in the electricity sector. Then, did the unbundling reform improve the productivity of power supply sectors? Using the dataset of power supply enterprises for the period from 2000 to 2007, we estimated the effect of unbundling reform on the productivity of power supply enterprises. We find that the unbundling reform significantly enhanced the productivity of the power supply companies. In addition, the impact of the unbundling reform peaked in the second year, and the reform dividend disappeared completely after the fourth year. The productivity of state-owned enterprises directly affected by the unbundling reform improved greatly than non-state-owned enterprises which were only indirectly affected by the reform. Moreover, we could not find any significant difference between the treated group and controlled group before 2003, reassuring the robustness of our empirical results. Finally, we also find out that the unbundling reform significantly improved the productivity of power supply companies at the county level, which were easily overlooked before the reform. Our paper has important policy implications for deepening the electricity reform in the future. |