The Impact of Economic Reform on Productivity Growth in Chinese Industry: A Case of Xiamen Special Economic Zone

Abstract

China's industrial and trade reforms were expected to stimulate growth in output and welfare by increasing the capacity of industry to absorb surplus factors of production, and by utilizing labour, capital, energy and materials more efficiently. The impact of the special economic zone reform policies on productivity and growth is assessed by studies of China's overall industrial sector performance and case studies in Xiamen and Shanghai Beijing, which is not subject to special policy initiatives, is used as a control. Although there were data limitations, several conclusions may be drawn.An increase in total factor productivity was found to have occurred in Xiamen during the reform period, but the creation of the special economic zone does not appear to have had a significant impact on productivity.Productivity performance in Beijing's state‐owned industry was considerably poorer than that of total Xiamen industry, including state, collective and firms jointly owned with foreign investors, and was also lower than the productivity performance of Xiamen's state sector. The productivity performance of Xiamen's joint ventures and collectively owned firms was, however, considerably superior to the state sectors in both cities.Due to data constraints, the analysis of productivity in Shanghai was for a shorter period. Most of Shanghai's state‐owned industry did better than the state‐owned sector in Beijing but did not perform as well as the non‐State sector in Xiamen over this period. Factor productivity in Shanghai industry was stagnant, Beijing's industrial productivity generally declined, but Xiamen's productivity improved considerably over the decade.One of the major strengths of this study is its access to new and more accurate disaggregated price indices to deflate capital investments on an industry by industry basis. Hence, the availability of the new capital stock deflator series should improve the total factor productivity estimates considerably.