SEMINAR: China�s Institutional Impediments to Sustainable Growth - A Productivity Approach

Abstract- Using a newly constructed China Industrial Productivity data set (CIP), this study adopts the Jorgensonian aggregate production possibility frontier (APPF) framework incorporating the Domar weights in aggregation to account for the industry origin of China’s aggregate growth and productivity performance, hence exploring the influence of the state. We show that China’s aggregate GDP growth, weighted by nominal industry costs, was 8.9 percent per annum (instead of double digit growth officially) over the period 1980-2012. This growth rate was made up by 7.0 ppts from the growth of labor productivity and 1.9 ppts from the rise of hours worked. The change in labor productivity can be attributable to 5.7 ppts of capital deepening, 0.5 points of labor quality improvement, and merely 0.8 points of TFP growth. We find that, across industries, those less prone to government direct interventions, such as agriculture and semi-finished and finished manufacturing industries, appear to have a stronger productivity growth than those directly controlled or substantially influenced by the government, typically the energy group. Besides the Domar aggregation scheme reveals that two thirds of the TFP growth or 0.5 ppts is directly from TFP growth within industries and the remainder attributed to a net factor reallocation effect in which labor played a positive role, nevertheless capital behaved irrationally.