Abstract
Since total factor productivity growth plays an essential role in China’s economic growth, the source of this growth has been a critical issue over the past decades. Hence, this paper applies an input slack-based productivity (ISP) index to investigate the contributors (i.e., labor and capital inputs) to China’s total factor productivity growth. The ISP index, combining the features of the directional distance function and Luenberger productivity index, can calculate the productivity change of each input factor under the total factor framework. According to the decomposition analyses, we find that China is confronting a dual challenge in total factor productivity growth: first, capital productivity growth exhibits a remarkable slowdown after the mid-1990s; second, although labor productivity continually expands, the relative labor efficiency among provinces has deteriorated since the 2000s. The results imply that the government should not only advocate upgrading industrial structure, but also consider balanced regional development policies for China’s sustainable growth.
Highlights
Since the beginning of its economic reforms in 1978, China has experienced persistently high growth and has created a well-known economic miracle
One main strand of the literature considers that total factor productivity growth (TFPG) plays an important role in China’s economic growth
Regarding China’s TFPG, we find that TFPG is always positive with an average growth rate of 3.49% over the research period
Summary
Since the beginning of its economic reforms in 1978, China has experienced persistently high growth and has created a well-known economic miracle. Over the last few decades the literature has widely investigated what has been driving China’s strong economic growth. One main strand of the literature considers that total factor productivity growth (TFPG) plays an important role in China’s economic growth. Chow and Li [2], Islam et al [3] and Li and Liu [4] find that the contribution from TFPG to economic growth accounts for over 30% in the case of China. Some researchers further note a periodic fluctuation in the contribution from TFPG to economic growth, such as [4]. Research on TFPG is quite meaningful in order to better understand how it has influenced China’s economic growth
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