Structural change, labour reallocation, and productivity growth in post-reform China

Wenliang Li

Oxford Economic Papers, 2024, vol. 76, issue 4, 1147-1167

Abstract: Why has the structural bonus been so small during China’s post-reform era? This article explains the puzzle by exploiting the heterogeneity in structural-change patterns across Chinese provinces. Using an original database covering production and factor inputs in 8 sectors and 31 provinces over 1993–2016, I show only those provinces where labour was reallocated from agriculture to manufacturing and services benefited from a structural bonus on labour productivity growth. In the other provinces, this structural-change effect was minimal or negative. Regarding the structural-change effect on total factor productivity (TFP) growth, I find both labour and capital reallocation played a limited role. Labour reallocation has little potential in boosting aggregate TFP growth, as marginal labour returns are similar across sectors. Capital reallocation has a far greater potential but remains restrained, suggesting substantial reallocation frictions. China’s TFP growth is mostly explained by within-sector technological progress, which has been dissipating since 2008, leading to declining TFP growth.

Keywords: China; factor reallocation; productivity growth; provincial disparities; structural change (search for similar items in EconPapers)
JEL-codes: O11 O41 O47 (search for similar items in EconPapers)
Date: 2024
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