Title: China's Productivity and Its Determinants: Incorporating Human Capital Accumulation

Speaker: Qiong Zhang

Abstract: Based on provincial panel data, this article identifies the determinants of productivity and uses counter-factual analysis to decompose the causes of China’s post-crisis slowdown in productivity growth. It finds that, firstly, economic openness has a significantly positive impact on the X-efficiency of production, whereas the income level has a significant negative effect as implied by the convergence theory. Secondly, a significantly negative correlation is observed between the stock of inventory and productivity through its influence on effective factor usage, and the opposite is observed between labor force involvement rate and productivity. Thirdly, through effects on the efficiency of resource allocation, government size and investment rate both have significantly negative effects on productivity, whereas urbanization has a significantly positive effect. Lastly, no significant effects of cyclical shocks on productivity are observed except for the years 2009 and 2012. We conclude that the diminishing late-mover advantage, the decrease in trade dependency ratio and labor involvement rate and the growth in investment rate, are all major contributors to the decline in China’s productivity since the financial crisis.

The main novelty of this article is as follows. First, it offers a comprehensive estimate of China’s national and provincial total factor productivity (TFP) over the period of 1978 – 2013 based on comparable data. More specifically, it follows the principle of “considering under-utilization of factors as efficiency loss” and differentiates between the “amount of inputs” and their “production efficiency” as much as possible when assessing the TFP. Moreover, because official statistics in China have been modified from time to time, we consider 1978 and 2012 as base year, respectively, and use the former as a benchmark and the latter as a robustness check. Second, it determines the impact of technical efficiency, the efficiency of factor utilization and the allocative efficiency on the TFP with provincial panel data. The panel can help to simultaneously consider provincial and year fixed effects. The former is closely related to regional specific time-invariant characteristics over years, whereas the latter reflects the cyclical effects on all provinces during the same period. Results from the panel can then be applied to reveal (long-run) effects of referred determinants on TFP when (short-run) cyclical shocks are controlled. Finally, after assessing the annual level of labor resource in different provinces, the article adopts two methods to calculate the TFP: one considers human capital stock, which is a measure of quality-adjusted labor force, as labor input; the other takes only working-age population into account but considers human capital as a determinant of the efficiency of factor utilization. The article also tests the robustness of the obtained results, adding to the understanding of the sources of fluctuation in the TFP.

About Qiong Zhang: Associate professor, school of economics, CUFE. She graduated from Tsinghua University, School of Economics and Management.

Date: Oct, 21th, 2015

Time: 13:30-14:50 PM

Location: Room 608, Academic Hall, CUFE