Institutional Change and Productivity Growth in China's Manufacturing 1998-2007: the Microeconomics of Creative Restructuring

This paper investigates the firm-level dynamics of labour productivity in China's manufacturing sector over the period 1998-2007. Underlying the aggregate evidence of a dramatic growth of labour productivity, one observes a large, even if shrinking, intra-sectoral heterogeneity. A major process of both catching-up and dying-out among the least effcient ones occurs. Furthermore, we explore the effect of the characteristics of firms according to the ownership and governance structure upon the productivity distributions, highlighting the importance of the transformation of domestic firms as drivers of technical learning. In essence the fast catching-up process entails more of a "creative restructuring" of domestic firms rather than sheer "creative destruction" and even less so an MNC-led drive.