Social Dishonesty and Total Factor Productivity: A Study Based on Transaction Costs
YU Yongze, ZHUANG Haitao, FU Yu
School of Public Finance and Taxation, Nanjing University of Finance and Economics; School of Urban and Regional Sciences/Institute of Finance and Economics, Shanghai University of Finance and Economics
Summary:
As the lubricant of economic and social transactions, social credit significantly affects the level of economic and social development in a region. At present, the extent of social dishonesty problems in China not only damage the business environment but also disrupt the normal economic order, reduce total factor productivity, and then negatively affect long-term economic growth. In June 2019, China's Supreme People's Court published a list of 14.43 million persons, or 1.03% of its total population, who were subject to enforcement for trust-breaking. The problem of social trust-breaking is extremely serious in China. Social dishonesty increases transaction costs and reduces the efficiency of economic transactions. Accelerating the construction of the social credit system is a basic project in developing China's market economy because it directly promotes standardization of the market order, reduces transaction costs, stimulates market vitality and innovation, enhances the predictability of economic and social activities, increases total factor productivity, and is highly important in realizing the decisive role of the market in resource allocation. Using data on persons subject to enforcement for trust-breaking published by the Supreme People's Court from 2004 to 2016, this paper measures the social trust-breaking situation at the city level, and then examines the impact of social trust-breaking on transaction costs and total factor productivity, and the relevant influencing mechanism. The data on persons subject to enforcement for trust-breaking are sourced from the Supreme Law Enforcement Information Disclosure Network, and are captured through the full list of enterprises. To address potential endogeneity issues, this paper adopts the instrumental variable method, selecting the number of Buddhist temples per million people as the basis for constructing a social dishonesty instrumental variable. In addition, a series of robustness tests and mechanism tests are conducted to confirm the results of this paper. Furthermore, the paper constructs a spatial econometric model to investigate the spatial spillover effect or the “spatial contagion” of social dishonesty on the total factor productivity growth rate. The innovative features of this paper are reflected in the following two aspects. First, in terms of research data, in contrast with studies that adopt questionnaire data, this paper builds a social trust-breaking index based on the large sample of persons subject to enforcement for trust-breaking published by the Supreme Court of China. Second, studies often fail to pay attention to the “infectious” spatial characteristics of social credit or trust. By including these spatial factors in the empirical analysis, this paper provides a more complete and accurate assessment of the efficiency losses caused by social trust failure than has been presented to date. The findings of the paper are as follows. (1) The loss of social trust reduces the total factor productivity of enterprises and society as a whole, and the more (less) developed the economy, the more (less) significant the impact of credit loss on total factor productivity. (2) Social dishonesty not only hinders the improvement of local total factor productivity but also inhibits the improvement of the surrounding area's total factor productivity through the spatial “contagion” effect. (3) A mechanism analysis shows that social dishonesty inhibits the improvement of total factor productivity mainly through the mechanism of increasing social and enterprise transaction costs and resource mismatches. This paper provides a new perspective that increases understanding of the relationship between social credit and economic efficiency, and provides theoretical and empirical support for the government to strengthen the construction of the social credit system to promote high-quality economic development. All regions should increase their focus on social credit, establish relatively complete screening and punishment mechanisms for dishonesty, along with a corresponding social credit index and credit standards to quantify the credit of local enterprises and individuals, and promote the construction of the social credit system and social governance. By increasing the “cost of breaking faith” and improving the transparency of market information, the phenomena of “adverse selection” and “moral hazard” in society can be reduced. In addition, social dishonesty is heterogeneous and “spatially contagious.” In the process of regional economic development, less developed areas should not ignore the governance of local social credit in their eagerness for development. Serious social credit failure will have a negative impact on surrounding areas, increase the cost of interregional cooperation and transactions, and lead to a situation of “isolation and no assistance” for regional development, further aggravating the backwardness of the less developed regions.
余泳泽, 庄海涛, 伏雨. 社会失信与全要素生产率——基于交易成本视角的研究[J]. 金融研究, 2023, 515(5): 58-76.
YU Yongze, ZHUANG Haitao, FU Yu. Social Dishonesty and Total Factor Productivity: A Study Based on Transaction Costs. Journal of Financial Research, 2023, 515(5): 58-76.
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