Technical efficiency and technology gap of the manufacturing industry in China: Does firm ownership matter?

Abstract

Abstract China’s manufacturing industry has undergone intense structural change during the enterprise reform. The waxing of private and foreign-owned firms and the waning of state-owned and collective firms are accompanied by dramatic technological upgrading and productivity growth. We study how ownership type affects technical efficiency and technological advancement in China’s industrial sectors using detailed firm-level data. By employing a metafrontier-based technique, we are able to account for technology heterogeneity in ascertaining four types of firm ownership in 30 manufacturing sectors. The robust data envelopment analysis offers estimation flexibility and enables us to mitigate data problems. Our results confirm that firm ownership is important in explaining technical efficiency and technology gap among Chinese firms. We show that foreign-owned firms set the standard for technical efficiency and are technology leaders. Private ownership is found to dominate state as well as collective ownership in both technical efficiency and technology gap. Over time, foreign-owned firms take the lead in efficiency improvement and private firms contribute to technology advancement. We also find that China has successfully revitalized state-owned firms, although room for improvement remains. Lastly, we find evidence that China has successfully stimulated technological progress in almost all industrial sectors. We contribute to the literature by using a nonparametric estimation method that assumes technology heterogeneity when firms are partitioned into hierarchical categories. Our study also has rich policy implications on China and other transit economies.