New Estimates and a Decomposition of Provincial Productivity Change in China

Productivity and efficiency change lies at the heart of some of the key challenges facing China’s economy. This paper contributes to an understanding of TFP change by computing and decomposing provincial-level Hicks-Moorsteen (H-M) total factor productivity (TFP) indexes for the period 1978 to 2008. The H-M index is appealing because, unlike the more commonly-used Malmquist TFP index, it can be decomposed into unambiguous measures of technical change and efficiency change. The efficiency change component can be further decomposed into measures of pure technical, scale and mix efficiency change. We also make use of new capital stock estimates that have been computed using province-specific investment price deflators and capital stock depreciation rates. On average across provinces, we find evidence of moderate TFP growth, as well as large changes in the components of TFP growth over the sample period. Considerable heterogeneity from province to province is also documented both with respect to the rate of TFP growth and its components.