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In Quest of Institutional Interpretation of TFP Change—The Case of China

Wu Harry X. ()
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Wu Harry X.: Institute of Economic Research, Hitotsubashi University, Kunitachi186-8603, Japan

Man and the Economy, 2019, vol. 6, issue 2, 22

Abstract: This research note reiterates the productivity theory in the Solow growth accounting framework to explore an institutional interpretation of changes in total factor productivity. In theory, total factor productivity or TFP growth is a costless gain in output, which captures the effect of positive externalities caused by spillovers of technological and organizational changes in a perfect market system. This provides a yardstick to gauge institutional effect on output in an imperfect market system if all inputs are properly measured. Using the Chinese case, I show that an integrated approach a la Jorgenson and Griliches (1967. “The Explanation of Productivity Change.” Review of Economic Studies 34 (3): 249–283) that ensures a consistency between theory, methodology and measurement can facilitate empirical exercises even with data problems, and a so-constructed TFP index for China can satisfactorily reproduce China’s post-reform productivity path with institutional interpretations.

Keywords: total factor productivity (TFP) growth; factor reallocation effect on TFP growth; institution; economic reform (search for similar items in EconPapers)
JEL-codes: C80 H70 O40 P30 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1515/me-2018-0015

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