Accounting for the Sources of Growth in the Chinese Economy

Using a newly constructed China Industrial Productivity (CIP) data set, this study adopts the Jorgensonian aggregate production possibility frontier (APPF) framework incorporating Domar weights to account for the industry origin of China’s aggregate growth for the period 1980-2010. We show that 7.14 percentage points of China’s gross domestic product (GDP) growth of 9.16% per annum can be attributed to the increase in labor productivity and 2.02 percentage points to the number of hours worked. The labor productivity growth can be further decomposed into 5.55 percentage points of capital deepening, 0.35 percentage points of labor quality improvement, and 1.24 percentage points of total factor productivity (TFP) growth. Across industries, those less prone to government intervention, such as agriculture and “semi-finished & finished” manufacturing industries, appear to be more productive than those subject to more government intervention, typically the “energy” industry group. The Domar aggregation scheme also reveals that only two-thirds of the 1.24% annual TFP growth, or 0.84 percentage points, are directly from industries and the remaining 0.40 percentage points are from a net factor reallocation effect in which labor played a positive role of 0.56 percentage points whereas capital played a negative role of -0.16 percentage