toward the equalization of factor returns--those of labor, capital and materiais--betwcen state and collective industry. Jefferson and Xu (1991) investigate, the convergence of factor returns among enterprises using two sets of panel data: one, consisting of 20 industrial enterprises in Wuhan _City,_ covers the period 1978-87; the other consists of an enlarged, nationwide set of 352 enterprises for 1980 and 1987. Both sets of data reveal patterns of convergence of factor returns. In their samples, returns to capital, labor and materials are each found to converge.

3.2 Neither of these studies investigates the tendency for levels of technical efficiency to become more equal during tie reform period. To investigate the issue of whether technical efficiency has become more uniform at the enterprise level, Dollar (1990) uses data collected by Tidrick and Chen (1987) for 20 industrial enterprises covering 1978-82. During these early years of the reform program, Dollar finds a tendency for TFP (labor and capital) to converge.

3.3 These finding suffer from various shortcoming, making their conclusions of greater productive efficiency only suggestive. Two of the three enterprise studies are based on samples of only 20 enterprises. Moreover, one of these, the Dollar study, omits intermediate inputs and uses data that cover a limited period of time before the industrial reforms were greatly expanded in 1984. With the exception of JRZ (forthcoming), which examines only two sectors, these studies suffer from their reliance on averare products as a proxies for marginal products. Specifically, the use of average products to proxy marginal returns relies on two critical assumptions: (a) homogeneous production technologies, and (b) the use of average prices to proxy marginal prices. The wide range of industries represented in the enterprise samples suggests a wide variety of technologies, while the pervasiveness of the dual pricing system guarantees that for most state enterprises, significant differences exist between average and marginal prces.

_3.4_ This paper presents a more definitive analysis of productive efficiency than any of the previous studies. By investigating the convergence hypothesis within individual industry branches, the analysis relies less upon the assumption of a single, homogeneous technology across all industries. Furthermore, in order to control for enterprises operating under different price regimes -- enterprises operating wholly inside, partly inside and wholly outside the plan -- we also test the convergence hypothesis for categories of enterprises operating within homogeneous price regimes. Finally, no previous work using Chinese enterprise data attempts to investigate specific sources of changes in patterns of inter-enterprise factor returns. The present paper does so in two respects. First, it examines the respective contributions of gains in technical efficiency and allocative efficiency to greater productive efficiency. Second, the paper specifically investigates the role that changes in relative product prices have had on the dispersion of technical efficiency.

_Assessing_ **_Gac_** _in_ **_ffent_** _Production_ **_Among China_** _'s Indusw Enterprises,_ by Guy **H.** Jefferson and Xu Wenyi 5