Decomposing the contribution of firm innovation to aggregate productivity growth: the case of Chinese manufacturing industry

ABSTRACT

This article proposes a generalized productivity decomposition approach to evaluate the contribution of firm innovation to aggregate productivity growth (APG) of China’s manufacturing industry. Results indicate that APG is mainly driven by firm-level productivity improvements, while across-firm resource misallocations lead to sizable productivity losses. The weak contribution of firm innovation to APG is found to be mainly caused by resource misallocations within innovating firms. The results suggest that firm innovation has not yet taken a dominant driving force for APG.

KEYWORDS:

• Firm innovation
• Aggregate productivity growth
• Resource misallocation
• Chinese manufacturing firms

JEL CLASSIFICATION:

• D24
• D61
• O12
• O31
• O47

Acknowledgements

We are grateful to two anonymous reviewers and David Peel, the editor, for the constructive comments. Xiaoyong Dai would like to thank Professor Christopher O’Donnell and Martie-Louise Verreynne for supervision and the financial support from the Endeavour Research Fellowship during his visit at the University of Queensland. All remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the China Postdoctoral Science Foundation: [Grant Number 2017M610626, 2018T111026], National Natural Science Foundation of China: [Grant Numbers 71473025, 71632004], Social Science Foundation of Shaanxi province: [Grant Number 2017D021] and Social Science Foundation of Liaoning province: [Grant Number L16AJL002].