Estimation of China's provincial capital stock (1952–2004) with applications

Abstract

Construction of physical capital stock data is a key element for estimating production functions, measuring total factor productivity growth, and for growth accounting. Existing literature, however, shows great variations in the estimates of China's national capital stocks because different methodologies and statistical sources were used. Systematic improvements and adjustments to China's GDP accounting practices have made it possible to produce a consistent and comparable series for provincial level capital stock using the perpetual inventory method (PIM). This article recommends a standardized procedure in constructing the level of capital stock for 30 Chinese provinces from 1952 to 2004. The merit of such statistical construction, although with some drawbacks, is that the series can be easily updated to more recent years using official statistics. Applying our capital stock data, we estimate total factor productivity growth and characterize the spatial pattern across provinces in post-reform China.

Keywords:

• capital stock
• total factor productivity

JEL Classification:

• O47

Acknowledgements

This paper is a revisited version of an original paper submitted for the International Workshop on Chinese Productivity held at Tsinghua University in Beijing on 13–14 January, 2007. The author would like to thank the organizer of the workshop. Thanks particularly go to Jinghai Zheng and two anonymous referees for their insightful comments and suggestions. Research assistance from Guiying Wu, Jipeng Zhang, who helped prepare for the initial Chinese version, Xi Zhang, Xueliang Zhang, and Shiyi Chen, who helped update the data, is highly appreciated. Financial support from the Chinese Ministry of Education for key research project (05JJD790076) is gratefully acknowledged.

Notes

Notes

1. These works, among others, include Zhang (1991, 2002), He (1992), Chow (1993), Jefferson et al. (1996), Hu and Khan (1997), Wang and Hu (1999), Wang and Fan (2000), Young (2000), Wang and Yao (2001); Huang (2002), Chow and Li (2002), Song et al. (2003), Li and Tang (2003), He et al. (2003), Zhang and Zhang (2003), Zhang et al. (2003), Li (2003), Gong and Xie (2004), Wu (2004, 2007), Zheng and Hu (2006), and Holz (2006a).

2. The essence of their method is to carry out a simultaneous determination of both capital stock series and total factor productivity (TFP) growth. In their method, capital stock series is the result of an iterative calculation process by selecting an arbitrary value for the growth rate of TFP.

3. We noticed that there is a debate recently on China's capital stock series between Holz and Chow (Holz, 2006a, 2006b; Chow, 2006). But this debate is more illustrative than critical, as it clarified a few details in Chinese statistical practice.

4. Wu (2004) also uses the perpetual inventory method to construct the capital stock series for 30 provinces in China. But the period his estimation covers is between 1900 and 2000. He assumes that the initial value of capital in 1900 was zero and the rate of depreciation for all regions is 7%. In his more recent work he extends his estimation by using different rates of depreciation for different regions (Wu, 2007).

5. One of the most important statistical sources for studies of the Chinese economy overseas is from Hsueh et al. (1993, 1999) in which provincial data were provided. But they also ignored the data in Historic Data of China National Accounting for Gross Domestic Products: 1952–1995, and A Fifty Years Statistical Compendium for New China.

6. Chow (1993) took land into account, but we do not in this study.

7. There are primarily three explanations considered for the diminishing efficiency of capital goods with the perpetual inventory method: (1) one-hoss-shay, (2) linear, and (3) diminishing the residual. They correspond to (1) a complete decline of efficiency during the last period of duration, (2) a linear decline of efficiency for each period, and (3) a geometric diminishing of efficiency (Jorgensen, 2001).

8. China began the publication of the annual figure for capital depreciation from 1994 onwards.

9. Therefore, capital accumulation can be classified as either productive or non-productive depending on its final use.

10. Fortunately, the Statistical Yearbook of Shanghai (2001) provides a series of both fixed capital formation and its index, starting from 1952. This dataset makes it possible for us to construct a nationwide implicit deflator for capital goods under certain assumptions.

11. Based on this source, Wang and Yao (2001), He et al. (2003), and Gong and Xie (2004) all constructed the deflator for fixed capital formation between 1952 and 1995.

12. We followed the method by NBS. We compared the resulting deflator for each province during 1991–1995 with those from the Statistical Yearbook of China, and they are almost the same during the same period.

13. We know clearly that this practice may neglect provincial variation in the depreciation rate. But due to the lack of statistics, we have to assume out cross-provincial difference.

14. As Young (2000) pointed out, if we estimate post-1978 provincial capital stock in China and the base year is 1952, then the time span of 26 years would make the initial level of capital stock insignificant, and therefore it does not matter which method is better.

15. We could easily extend our estimation to the current year of 2005 and 2006. But we did not do so because the national economic census conducted in the year of 2005 could modify the statistics of 2005 and correct some data of both previous years and years after 2005, therefore figures in Table 3 are statistically consistent.

16. Of course, Beijing's rapid accumulation of capital since the mid-1980s, and mid-1990s in particular, was due primarily to its status as China's capital city, and was largely influenced by political considerations. On the contrary, Shanghai was able to raise its capital stock rapidly mainly because of its economic importance to China.

17. The eastern region includes 11 provinces and municipalities: Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. The central region includes 10 provinces: Shanxi, Neimenggu, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan and Guangxi. The western region includes nine provinces: Sichuan, Guizhou, Yunnan, Xizang, Shannxi, Gansu, Qinghai, Liaoning and Xinjiang.