Convergence in Labor Productivity across Provinces and Production Sectors in China

The panel data analysis for labour productivity convergence across provinces and sectors in China shows existence of unconditional and conditional convergence among them. While the human capital is found to have positive and significant effects on growth rates of sector-wise productivities, the FDI had positive and significant effects on growth rates of productivity across provinces. According to quantile regression, the convergence are asymmetric among provinces and sectors. The policy implications of this analysis is that low productivity sectors should improve human capital and reduce concentration for growing faster. Similarly provinces with low productivity could encourage more FDI to complement domestic investment for achieving higher rates of growth in labour productivity. This study also finds that greater inequality lowers the rate of labour productivity and hence causes more divergence across provinces. Effects income inequality on productivity are asymmetric and heterogeneous by quantiles and hence demand for an egalitarian redistribution system.