Decomposition and convergence of total factor productivity in China

Abstract

Productivity growth is a major source of economic growth. A panel data set of 29 provinces in China is used to analyze the decomposition and convergence of total factor productivity(TFP) in China over the period 1991–2007. This paper use the method of data envelopment analysis (DEA) to calculate the output-oriented Malmquist productivity indexes, and their decomposition, which include technology progress, technical efficiency changes, pure technical effect and scale effect. The results of the decomposition reveal that technology progress has been the main driving force of productivity growth, but that differences in technical efficiency changes explain cross-regions differences in TFP growth. While technical efficiency changes have contributed to reduce average productivity growth. The empirical results show the decomposition carried out in this study may be very helpful to elicit the correct diagnosis of China's productivity problem and develop effective policies to reverse the situation. In addition, by the regression analysis panel data, it is found that the economic productivity in general has a convergence of trends in China. Therefore the China's productivity gap will be reduced.