Green productivity divergence and factor endowments: Evidence from the Yellow River Basin, China

Abstract

Using panel data for the Yellow River Basin (YRB) of China from 2006 to 2017, we investigate cross-city conventional total factor productivity (TFP) and green TFP convergence, and the moderating effects of relative factor endowments on TFP growth. Allowing for cross-city and cross-time variation in the production function, we estimate TFP across cities using a nonlinear varying coefficient model, and decompose it into various input-embedded and input-free productivity components based on the new growth accounting, covering all growth-driving channels. This paper then employs a conditional convergence framework to examine whether convergence occurs, through which channels, and the effects of relative factor endowments on them. Empirical results show that lagging cities fail to achieve TFP catch-up, and that the divergence of capital-embedded and labor-embedded productivity instead triggers a widening of the cross-city TFP gap. Part of the cause of this increase in these gaps is that cities with relatively high capital deepening and capital-to-energy ratio are experiencing rapid TFP growth by driving the quality of capital and labor. Nor have these effects been altered in examining environmentally constrained or green TFP convergence.