| Abstract | Based on the background of SOEs reform and restructuring of the supply side, we explore the effect of local protection of SOEs on the efficiency of resource allocation by using Chinese firm-level data from 1998 to 2007 and 2013. We find that resource allocation plays a waning role in boosting TFP and local protection of State-owned enterprises has significant negative relation on the efficiency of resource allocation. Besides, we test our results by introducing an instrumental variable and using a quasi-natural experiment of revocation of department of textile and chemical industries. Further, we find that in a city-industry with more serious State-owned enterprises protection, non-SOEs are more difficult to get resources to expand scale, and new firms need larger total factor productivity to enter the market, and State-owned enterprise are less likely to exit the market. In sum, if the resource allocate efficiently, the social gross output value will increase 14 percent and the total employment will increase 16 percent. This paper has high practical value by studying the effect of local protection on resource allocation and providing suggestions for enhancing the SOE reform and structure upgrading. |