Technical Change and Total Factor Productivity Growth:The Case of Chinese Provinces

In the literature technical change is mostly assumed to be exogenous and specified as afunction of time. However, some exogenous external factors other than time can also affecttechnical change. In this paper we model technical change via time trend (purely externalnon-economic) as well as other exogenous (external economic) factors (technology shifters).We define technology index based on the external economic factors which are indicators of‘technology’. Thus our definition of production function is amended to accommodate severaltechnology shifters which are not separable from the traditional inputs. That is, thesetechnology shifters allow for non-neutral shift in the production function. In doing so we areable to decompose technical change (a component of TFP change) into two parts. One partis driven by time (manna from heaven) and the other part is related to producer specificexternal economic factors. These exogenous technology shifters are aggregated (via hedonicaggregator functions) into several groups (technology indices) for parsimonious parametricspecification. The empirical model uses panel data on Chinese provinces. We identify anumber of key technology shifters and their effect on technical change and TFP growth ofprovinces....