Abstract: As China’s economic growth is set to depend more on innovation and less on the growth of factors,increasing total factor productivity (TFP) becomes more important and urgent for the realization of high-quality development in the new development stage.The paper aims to estimate the growth rate of China’s TFP and its contribution rate to economic growth,and compare them with the U.S.economy.We use the method of Tornqvist index in the growth accounting framework,following the practices conducted by OECD,BLS and PWT.To accurately estimate TFP,we instead use the capital services,other than capital stock,to measure capital input,and also use the time spent,other than employment,to measure labor input.We also investigate the role of heterogeneity of labor input and various measures of labor income share in TFP estimation.
The papers focus on the period from 1997 to 2021 because of the availability and the quality of data.The time span of twenty-five years can reveal the long-run trend of China’s TFP.We find that the growth rate and the contribution rate of China’s TFP rose constantly before 2007 and showed  a V-shaped trend after.The growth rates in 2010,2011 and 2020 were among the lowest,due to the global financial crisis and the shock of Covid-19.The contribution rate recovered rapidly after 2012,and was mostly larger than that in 2006 after 2015.The growth rate of China’s TFP was higher than the U.S.in most  years,but their gap narrowed after the crisis.The contribution rate of China’s TFP to growth was lower than the U.S.before the crisis,then rose to surpass the U.S.in most of years after the crisis.The differences in the trends of TFP growth between China and the U.S.can be largely attributed to the differences in development stages of technology,innovation and structural transformation.Because the growth dividends from the scientific and industrial revolution were released earlier in the U.S.,and the rise of services with lower TFP growth was more salient in the U.S.,the TFP growth in the U.S.declined significantly.Moreover,China’s growth dividend from market-oriented reform and R&D investment was also an important contributor,as it increased the efficiency of factor allocation and utilization.
To achieve steady TFP growth,China should continue the market-oriented reform and high-level opening,and build modern industrial system supported by the real economy.First,deepening market-oriented reform could release the reform dividend for growth.We suggest China should further reform its factor markets,especially in labor market,land market and capital market,to optimize factor allocations between sectors and regions to increase factor efficiency.Second,accelerating high-level opening could enhance China’s comparative advantage in the global supply chain.We suggest China should further advocate a new wave of globalization to gain more growth momentum,and steadily open up its financial market,services and digital economy to draw more foreign investors.Third,building modern industrial system supported by the real economy could spur the process of innovation and technological change.We suggest China should stabilize the share of manufacturing,seize the opportunities presented by the new round of industrial revolution,enhance the technological innovation capacity,and promote changes in the whole industrial systemin terms of quality,efficiency and driving force.
The paper conducts a more accurate and rigorous empirical study on the estimation of China’s productivity growth,which offers more facts and evidence for China to recognize its trends of economic growth and structural transformation,and also derives corresponding policy implications for China to better promote high-quality economic development.