Convergence in labor productivity across provinces and production sectors in China

Abstract

Empirical evidence is found for the β and σ convergence towards the steady states of labor productivity across provinces and production sectors in China based on estimates of static, dynamic and quintile panel data models. The pattern of convergences is found to be asymmetric across sectors according to quantile panel regression estimations. The pattern of convergence was more obvious when controls for human capital, FDI, industrial concentration and inequality were introduced for the robustness of our analysis. While the effects of human capital and FDI on productivity convergence are asymmetric across provinces and sectors, more inequality or higher rate of industrial concentration lead to divergence either in simple or quantile panel estimations. Implications these findings are clear. Policies that promote competition and more equal distribution are better for convergence in labour productivity across provinces and sectors in China.