Productivity Growth and Industrial Structure Adjustment: An Analysis of China’s Provincial Panel Data

Abstract

This study has two objectives. First, we calculate China’s total factor productivity in the overall economy and manufacturing sector by a variety of methods. Second, we quantify, respectively, the impact of capital transfer and labor mobility on the overall economic and industrial total factor productivity (TFP). We use the translog production function method and Cobb-Douglas (C-D) production function to calculate China’s industrial and overall economic TFP, and we test the structural-bonus hypothesis. The empirical results indicate that the TFP in both the overall economy and manufacturing sector has declined since 1993, especially after the financial crisis in 2008, although China, indeed, has experienced a high rate of productivity growth with the reform and opening policy. Considering the Verdoon effect, the structural-bonus hypothesis is not significant in China. The implication is that it is important to improve China’s productivity growth by allocating the cross-sectoral and cross-regional production factors and promoting their flows.