Productivity growth and convergence across China's industrial economy

Abstract

Using a firm-level data set for 1998 and 2005 including all of China's ‘above designated size’ enterprises that together account for more than 85% of China's industrial output, this paper investigates three issues. One key issue in China's industrial system is the extent to which growth has been driven by productivity change. A second issue is the relative productivity performance of enterprises of different ownership types, including a comparison of state-owned versus various forms of non-state ownership. The third issue is whether productivity across China's key regions–coast, northeast, central, and west–exhibits convergence or divergence. One key finding that cuts across all three issues is the exceptional contribution to productivity growth made by exiting and entering firms, much of which is associated with restructuring. During 1998–2005, the phenomenon of firm exit and entry contributed substantially to China's overall industrial productivity growth, to the relatively rapid growth of state industry productivity, and to substantial productivity catch-up with the coastal region by many of the interior provinces.

Keywords:

• productivity
• growth
• convergence

JEL Classification:

• L60
• O17
• P31

Acknowledgments

The authors acknowledge the support provided by the US National Science Foundation (award # SES-0519902), the US Department of Energy's Biological and Environmental Research Program (contract # DE-FG02-00ER63030), and Lingnan University Direct Research Grant (funding # DR07B4).

Notes

1.  Brandt et al. (2008) attempt to correct for this miscounting. Jefferson et al. (2006) compare labor productivity levels across China's agricultural, industrial, and service sectors using both the original NBS employment data and the revised data prepared by Brandt et al.

2.  About 35,000 firms in 1998 and 10,000 firms in 2005 are removed from the sample as a result of the data cleaning procedure.

3.  Our analysis of the data indicates that firms that change their ownership classification and also change their SIC code, address, or size designation are more likely also to change their firm ID. Firms that change their ownership classification while leaving these other attributes unchanged are less likely to change their IDs.

4.  Jefferson et al. (2006) also show in their sample of China's large and medium-size industrial enterprises a substantial rise in capital productivity during 1998–2005 following a decline in capital productivity during 1995–1998.

5.  Constant returns to scale (CRS) is imposed by converting the Cobb–Douglas production function into intensive form, which requires that the two output elasticities for labor and capital sum to unity.

6.  As a prior, we might anticipate that the estimate for capital's output elasticity for the full sample would be smaller for the full sample within which the firms are substantially less capital intensive than for the balanced sample. The smaller (larger) output elasticity for capital (labor) would tend to equalize the marginal products of capital and labor between the representative firm in the full sample as compared with that of the balanced sample. The difference in the estimates shown in columns (1) and (3) of Table 3 suggests that further analysis of different production technologies for surviving firms and exiting and entering firms may be useful.

7.  The coastal region includes Beijing, Fujian, Guangdong, Hainan, Hebei, Jiangsu, Shanghai, Shandong, Tianjin, Zhejiang; the northeast region includes Heilongjiang, Jilin, and Liaoning; the central provinces are Anhui, Guangxi, Henan, Hubei, Hunan, Inner Mongolia, Jiangxi, and Shanxi; the western provinces consist of Chongqing, Gansu, Guizhou, Ningxia, Qinghai, Shaanxi, Sichuan, Xinjiang, Tibet, and Yunnan.

8.  A concordance is available from the authors.

9.  In fact, the implicit industrial GDP deflator tends to be marginally larger than the general ex-factory price index. One plausible explanation for this is that while the ex-factory index is based on the price of sales of industrial products by the manufacturing suppliers, the industrial GDP deflator is based on increases in the final prices of industrial goods, which may reflect an increase in markups associated with the distribution of industrial goods from the factory to the final users.

10.  See Jefferson, Hu and Su (2006, Table 9), who in their sample of large and medium-size industrial enterprises find that exiting firms exhibit productivity levels that are far below and entering firms exhibit levels that are generally above those of surviving firms.

11.  NBS (2005, 514).

12.  NBS (2005, 514–518).

13.  The 14.1% figure is the difference between the measure of the productivity gap in 1998 (i.e., 0. 338) and the 2005 coastal dummy (i.e. −0.197).

14.  These figures are computed as the differences between the coastal dummies for 1998 and 2005 and those for the regions in question for the same years.