Industrial productivity performance in Chinese regions (1987–2002): a decomposition approach

Abstract

This article investigates the productivity performance of China's industries 1987–2002, by means of a provincial panel. Productivity growth is decomposed into four components: technical progress, scale efficiezncy change, and improvements in technical and allocative efficiency. Although total factor productivity growth had been the second major contributor to industrial growth (after capital accumulation), it has been driven mainly by technical progress rather than efficiency improvement. The estimated stochastic production frontier function exhibits substantial economies of scale. Regional differences in technical progress are negligible, but differences in technical efficiency are statistically significant across regions. The restructuring of state-owned enterprises from the mid-1990s seems to have improved technical efficiency considerably, while the performance of allocative efficiency does not seem to be converging towards standard conditions for optimizing firms under perfect competition. Factor price distortions, like artificially cheap capital together with suppressed wage levels, might have been the driving forces behind China's capital-intensive industrial growth and technology-dependent productivity performance.

Keywords:

• transition
• industry
• productivity
• TFP
• SOE reform

JEL Classification:

• E230
• O140
• O470

Acknowledgements

Jinghai Zheng is also guest research fellow at the Center for China Studies, Tsinghua University, China. The authors wish to thank two anonymous referees for useful comments on an earlier version of the paper.

Notes

Notes

1.  All these figures are the authors’ calculations on the basis of related data given in various editions of China Statistical Yearbook compiled the National Bureau of Statistics (hereafter: NBS).

2.  The four regions include: (Northeast) Liaoning, Jilin, Heilongjiang; (East) Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Guangxi; (Middle) Shanxi, Inner Mongolia, Anhui, Jiangxi, Henan, Hubei, and Hunan; (West) Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang. Here, data for the city of Chongqing are integrated into Sichuan province after 1996 when Chongqing became a municipality, so that the data for Sichuan are consistent.

3.  Frequently, the model did not converge when the second-order term was included.