nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2020‒07‒20
nineteen papers chosen by

  1. Does university performance have an economic payoff for their home regions? Evidence for the Spanish provinces By Joan Crespo; Jesús Peiró-Palomino; Emili Tortosa-Ausina
  2. Productivity Growth and Efficiency Dynamics of Korean Structural Transformation By Jeong,Hyeok
  3. Does Firm Size Effect Wages and Labor productivity? -Micro data analysis in case of Japan- By Ai Oku; Shun Inoue; Tsubasa Masui
  4. From Imitation to Innovation: Where Is all that Chinese R&D Going? By Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
  5. Female Business Leaders, Business and Cultural Environment, and Productivity around the World By Fang,Sheng; Goh,Chorching; Roberts,Mark; Xu,L. Colin; Zeufack,Albert G.
  6. Misallocation and Capital Market Integration: Evidence From India By Bau, Natalie; Matray, Adrien
  7. The effects of ICT ownership on hospital performance in the Cameroonian context By Chevalier de Dieu Kutche Tamghe; Denis Ngae; Innocent Essomme
  8. Misallocation and Capital Market Integration: Evidence from India By Natalie Bau; Adrien Matray
  9. Applying Interval Clustering to Quantile Estimates: Empirical Distributions of Fertilizer Cost Estimates for European Countries By Dominique Desbois
  10. Exports and Productivity : The Role of Imported Inputs and Investment in R&D By Manghnani,Ruchita
  11. Selection and Absolute Advantage in Farming and Entrepreneurship By Alvarez-Cuadrado, Francisco; Amodio, Francesco; Poschke, Markus
  12. Worker surveillance capital, labour share and productivity By Askenazy, Philippe
  13. Import Competition, Heterogeneous Preferences of Managers, and Productivity By Chen, Cheng; Steinwender, Claudia
  14. Changing returns-to-scale and deepening of factor-endowments-induced specialization: Exploring broader linkage between agricultural mechanization and agricultural transformation in Nepal By Takeshima, Hiroyuki; Kumar, Anjani
  15. Assessing the long-term impact of agricultural research on productivity: Evidence from France By Stéphane Lemarié; Valérie Orozco; Jean-Pierre Butault; Antonio Musolesi; Michel Simioni; Bertrand Schmitt
  16. Waiting for My Sentence: Air Pollution and the Productivity of Court Rulings By Luis Sarmiento
  17. Long-Term Shifts in Korean Manufacturing and Plant-Level Productivity Dynamics By Lee,Yoonsoo
  18. Does Minimum Wage Increase Labor Productivity? Evidence from Piece Rate Workers By Ku, Hyejin

  1. By: Joan Crespo (Department of Economics, Universitat Jaume I, Castellón, Spain); Jesús Peiró-Palomino (INTECO & Department of Applied Economics II, University of Valencia, Spain); Emili Tortosa-Ausina (IVIE, Valencia and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes the impact of the university system performance on labor productivity growth for Spanish regions during the period 2009–2016. Using a frontier approach, we decompose changes in university performance into efficiency changes (approximations to the frontier) and changes due to technical progress (shifts of the frontier). Our results show a positive link between university performance and the productivity growth of their home regions. We also find that this impact is driven by shifts in the frontier rather than by approximation to the frontier. This effect is robust across stages of the economic cycle (crisis and recovery), as well as across different estimation methods, and when including spatial spillovers, although it is only significant for provinces with productivity levels above the median. This suggests that the inefficiency of the Spanish university system can be one of the factors slowing down the convergence path of Spanish provinces.
    Keywords: university performance, productivity, provinces
    JEL: C61 J24 R11
    Date: 2020
  2. By: Jeong,Hyeok
    Abstract: This paper documents the sources of the Republic of Korea's economic growth, as well as the associated productivity growth and efficiency dynamics during its process of structural transformation from 1970 to 2016. The analysis includes land as a separate production factor to sort out the significant effect of changes in intersectoral land allocation, which makes significant differences in measuring the magnitudes and directions of change in sectoral total factor productivity (TFP). Input-based growth and structural changes contributed to the early take-off stage of growth in the 1970s. However, the growth regime switched to a productivity-based one, mainly engineered by the industry sector, for the following three decades, which was the reason behind the country's sustained growth and escape from the middle-income trap. Furthermore, agricultural TFP growth also made an important contribution to structural transformation by promoting to push out factors from agriculture to industry. But since 2011 when Korean economy seemed to reach its steady state being recognized by the constant capital-output ratio, the economy has faced sudden stagnation of TFP. The wedge analysis suggests that the intersectoral allocation was biased toward agriculture or labor, but toward industry for capital and land, compared to efficient allocation. The inter-temporal wedge analysis suggests that Korean economy was in over-investment throughout the structural transformation. The analysis also shows that the period of growth promotion is not always associated with the enhancement of allocative efficiency. Further, growth-disturbing external macroeconomic shocks, such as joining WTO and the Asian financial crisis, improved either the economy's allocative efficiency or TFP.
    Date: 2020–06–18
  3. By: Ai Oku (Chief Economist, Policy Research Institute); Shun Inoue (Researcher, Policy Research Institute); Tsubasa Masui (Officer, Policy Research Institute)
    Abstract: This paper analyzes the relationship of gfirm size and wages h and gfirm size and labor productivity h by using micro data of Financial Statements Statistics of Corporations by Industry FY2018. We find that 1) in the manufacturing sector, the larger the firm is, the higher the wages and labor productivity are, 2) in the services sector, especially large firms (250 employees or over), the relationship between gfirm size and wages h and gfirm size and labor productivity h is not as strong as that in the manufacturing sector, 3) in both the manufacturing sector and the services sector, wages and labor productivity have a positive correlation.
    Keywords: Firm size, wage, labor productivity, Financial Statements Statistics of Corporations by Industry
    JEL: D22 J24 J31 L25
    Date: 2020–01
  4. By: Michael König; Zheng Michael Song; Kjetil Storesletten; Fabrizio Zilibotti
    Abstract: We construct a model of firm dynamics with heterogeneous productivity and distortions. The productivity distribution evolves endogenously as the result of the decisions of firms seeking to upgrade their productivity over time. Firms can adopt two strategies toward that end: imitation and innovation. The theory bears predictions about the evolution of the productivity distribution. We structurally estimate the stationary state of the dynamic model targeting moments of the empirical distribution of R&D and TFP growth in China during the period 2007--2012. The estimated model fits the Chinese data well. We compare the estimates with those obtained using data for Taiwan and find the results to be robust. We perform counterfactuals to study the effect of alternative policies. We find large effects of R&D misallocation on long-run growth.
    JEL: L16 O31 O47 O53
    Date: 2020–06
  5. By: Fang,Sheng; Goh,Chorching; Roberts,Mark; Xu,L. Colin; Zeufack,Albert G.
    Abstract: Studies of female business leaders and economic performance are rarely conducted with worldwide observational data, and with considerations on the underlying cultural, institutional, and business environment. This paper uses worldwide, firm-level data from more than 100 countries to study how female-headed firms differ from male-headed firms in productivity level and growth, and whether the female leader performance disparity hinges on the underlying environment. Female-headed firms account for about 11 percent of firms and are more prevalent in countries with better rule of law, gender equality, and stronger individualistic culture. On average, female-headed firms have 9 to 16 percent lower productivity and 1.6 percentage points lower labor productivity growth, compared with male-headed firms. The disadvantage is mainly in manufacturing firms, largely nonexistent in service firms, and present in relatively small firms. Although the female leader performance disadvantage is surprisingly not related to gender equality, it is smaller where there is less emphasis on personal networks (better rule of law, lower trade credit linkages, lower usage of bank credit, and more equalizing internet), less competition, and the culture is more collective. The study does not find that the female leader disadvantage is amplified in corrupt environments. Africa differs significantly in that it features lower female disadvantage, stronger female advantage in services relative to manufacturing, and stronger sensitivity of female business leaders to electricity provision and bank credit access.
    Date: 2020–06–11
  6. By: Bau, Natalie; Matray, Adrien
    Abstract: We show that foreign capital liberalization reduces capital misallocation and increases aggregate productivity using a natural experiment. The staggered liberalization of access to foreign capital across disaggregated Indian industries allows us to identify changes in firms' input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK)/high sales to capital ratios, liberalization increased revenues by 18%, physical capital by 60%, wage bills by 26%, and reduced the marginal revenue product of capital by 43% relative to low MRPK firms. There were no effects on firms with low MRPK. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign investors may substitute for an efficient banking sector. Finally, we develop a method to use natural experiments to estimate the lower bound effect of changes in misallocation on manufacturing productivity. We find that this liberalization episode increased the aggregate productivity of the Indian manufacturing sector by at least 6.5%.
    Keywords: aggregating reduced-form estimates; foreign capital liberalization; India; Misallocation
    JEL: O11 O12 O16 O47
    Date: 2020–01
  7. By: Chevalier de Dieu Kutche Tamghe (IPD - Institut Panafricain Pour le Développement); Denis Ngae (University of Wisconsin-Madison); Innocent Essomme (Université de Dschang)
    Abstract: This study aims to research the effects of the ownership of ICT on hospital performance in the Cameroonian context. To achieve this objective, data from a field survey of a valid random sample of 479 employees from first and second category hospitals in Cameroon are subjected to descriptive and econometric analyzes. The results obtained reveal that the level of ownership of ICT by hospital staff is very average and has an impact on hospital performance. Indeed, the inferential analyzes performed using simple regression showed a positive and significant effect of the perceived ease of use of ICT, the perceived usefulness and cognitive absorption on hospital performance. These results, discussed from the perspective of Berbain and Minvielle (2001), Li, Benton and Leong (2002), Mukuna (2016) and Picard (2007) suggest acting on the determinants of ICT ownership, which are: training, raising awareness and improving the working conditions of hospital staff if we want to improve their ability to use and their enthusiasm for this use of ICT. this would improve staff satisfaction, patient satisfaction and the quality of clinical services.
    Keywords: Hospital performance,Cognitive absorption,Perceived usability,ICT ownership,Perceived usefulness
    Date: 2020–04
  8. By: Natalie Bau (UCLA and CEPR); Adrien Matray (Princeton University)
    Abstract: We show that foreign capital liberalization reduces capital misallocation and in-creases aggregate productivity using a natural experiment. The staggered liberalization of access to foreign capital across disaggregated Indian industries allows us to identify changes in firms’ input wedges, overcoming major challenges in the measurement of the effects of changing misallocation. For domestic firms with initially high marginal revenue products of capital (MRPK)/high sales to capital ratios, liberalization increased revenues by 18%, physical capital by 60%, wage bills by 26%,and reduced the marginal revenue product of capital by 43% relative to low MRPK firms. There were no effects on firms with low MRPK. The effects of liberalization are largest in areas with less developed local banking sectors, indicating that foreign investors may substitute for an efficient banking sector. Finally, we develop a method to use natural experiments to estimate the lower bound effect of changes in misallocation on manufacturing productivity. We find that this liberalization episode increased the aggregate productivity of the Indian manufacturing sector by at least 6.5%.
    Keywords: India
    JEL: F36
    Date: 2020–01
  9. By: Dominique Desbois (ECO-PUB - Economie Publique - AgroParisTech - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: The decision to adopt one or another of the sustainable land management alternatives should not be based solely on their respective benefits in terms of climate change mitigation but also based on the performances of the productive systems used by farm holdings, assessing their environmental impacts through the cost of specific resources used. This communication uses the symbolic clustering tools in order to analyse the conditional quantile estimates of the fertilizer costs of specific productions in agriculture, as a replacement proxy for internal soil erosion costs. After recalling the conceptual framework of the estimation of agricultural production costs, we present the empirical data model, the quantile regression approach and the symbolic clustering tools used to obtain typologies of European countries on the basis of the conditional quantile distributions of fertilizer cost empirical estimates. The comparative analysis of econometric results for main products between European countries illustrates the relevance of the typologies obtained for international comparisons based on their input specific productivity.
    Abstract: La décision d'adopter l'une ou l'autre des alternatives de gestion durable des terres ne devrait pas être fondée uniquement sur leurs avantages respectifs en termes d'atténuation du changement climatique, mais également sur les performances des systèmes de production utilisés par les exploitations agricoles, en évaluant leurs impacts environnementaux à travers le coût des ressources spécifiques utilisées. Cette communication mobilise les outils de la classification symbolique afin d'analyser les estimations quantitatives conditionnelles des coûts des engrais de productions spécifiques en agriculture, en tant que substitut des coûts internes de l'érosion des sols. Après avoir rappelé le cadre conceptuel de l'estimation des coûts de production agricole, nous présentons le modèle de données empiriques, l'approche de régression quantile et les outils de classification symbolique utilisés pour obtenir des typologies de pays européens sur la base des estimations empiriques des distributions quantile conditionnelles des coûts des engrais. L'analyse comparative des résultats économétriques pour les principaux produits entre les pays européens illustre la pertinence des typologies obtenues pour les comparaisons internationales basées sur la productivité spécifique de leurs intrants.
    Keywords: intervalles d'estimation,agricultural product,European countries,classification symbolique,quantile regression,empirical distributions,specific cost,symbolic clustering,interval estimates,distributions empiriques,coût spécifique,produit agricole : pays européens,régression quantile
    Date: 2020–06–02
  10. By: Manghnani,Ruchita
    Abstract: The empirical evidence on within firm productivity improvements from exports has largely been understated because the measures of revenue productivity used do not account for pricing heterogeneity across firms. Using a panel of Indian firms, the analysis in this paper controls for firm variation in prices and uses proxy methods to retrieve measures of productivity that reflect physical productivity. Within-firm productivity changes from export entry are computed using a difference-in-differences matching estimator. The findings show that, over a six-year period, the difference in productivity growth between export entrants and their non-exporter counterparts is about 11 percentage points. Thus, productivity improvements from selling in international markets have largely been understated in the export-productivity empirical literature. This difference in productivity growth is decomposed into two channels. About 15 percent of the difference in productivity growth is explained by higher imports of intermediate inputs, and about 85 percent is explained by investment in research and development. The evidence suggests that investment in research and development is an important source of within-firm productivity gains even in developing countries.
    Date: 2020–06–16
  11. By: Alvarez-Cuadrado, Francisco; Amodio, Francesco; Poschke, Markus
    Abstract: Output per worker is lower in poor countries than in rich countries, and relatively more so in the agricultural sector. Sorting of heterogeneous workers can contribute to explain this fact if comparative and absolute advantage are aligned in agriculture, implying that average productivity in agriculture increases as the agricultural employment share decreases. We empirically investigate the correlation between comparative and absolute advantage using representative household-level panel data from four Sub-Saharan African countries. Around one third of households engage in both agriculture and non-farming entrepreneurship. We find that more productive farming households are more likely to also engage in non-farm entrepreneurship, allocate more hours to it if they do, and are more likely to enter it if not yet active. All three pieces of evidence imply that comparative and absolute advantage are negatively correlated -- misaligned -- in agriculture, casting doubt on the importance of selection as a root cause of the agricultural productivity gap.
    Keywords: Africa; agricultural productivity gap; entrepreneurship; selection
    JEL: J24 J31 J43 L26 O11 O13 O40
    Date: 2020–01
  12. By: Askenazy, Philippe
    Abstract: In this paper, we propose a basic model with two types of capital: productive capital directly involved in the production process and capital devoted to monitoring workers. Surveillance capital intensifies workers' job strain, while wage recognition encourages their engagement. Firms face a double trade-off between the two types of capital and between incentives and labour costs. Under simple assumptions, up to a certain threshold, technological innovation improves productivity, wages and profits at the same pace, leading to a flat labour share in income. Then, once the threshold is breached, profit-maximization initiates a transfer from productive capital to monitoring tools. This progressive shift generates a decline in the labour share and a productivity slowdown, despite greater job strain. The model suggests the possibility of a third phase in which productivity and wages recover.
    Keywords: declining labour share, productivity slowdown, effort-reward imbalances, surveillance, O33, O40, J20, J30
  13. By: Chen, Cheng; Steinwender, Claudia
    Abstract: When managers have objectives beyond maximizing monetary profits, inefficiencies may arise. An increase in competition may then force managers to improve the productivity of the firm in order to ensure survival. While this hypothesis has received ample theoretical attention, empirical evidence is scarce, mainly because preferences of managers are typically unobserved. In this paper, we exploit the fact that a large literature has documented specific non-monetary preferences of family managers. Using Spanish firm-level data, we compare how family-managed and professionally-managed firms react to import competition shocks. We find that import competition leads to productivity increases in family-managed firms that are initially unproductive. Productivity improvements are driven by family management as opposed to family ownership or non-managing family members. Furthermore, we show that these managers increase efficiency by reducing material usage, which is consistent with them trying to increase their short-term cash flow in order to survive. Finally, productivity improvements seem to be particularly pronounced in multi-generational family firms that also introduce organizational changes.
    Keywords: family firms; import competition; Managers; productivity
    JEL: D22 D23 F14 L21 L22
    Date: 2020–01
  14. By: Takeshima, Hiroyuki; Kumar, Anjani
    Abstract: Heterogeneity in factor endowments and the degree of specializations induced by comparative advantages are among the crucial factors that affect the overall productivity of the economy. Few studies, however, investigate what strengthens such endowment-related specialization patterns in the agricultural sector in low-income countries, although such evolutions have profound effects on the role of factor endowments in households’ behaviors. This is in contrast to well-established international trade theory, such as the Heckscher–Ohlin theorem which describes how heterogeneity in endowment across countries gives rise to comparative advantages for specialization and trade. We partly fill this critical knowledge gap by providing a set of evidence from Nepal, which is a country that has historically been dominated by smallholder farmers and yet has recently been experiencing rapid structural transformation within the agricultural sector. Specifically, we show the following: the agricultural sector in Nepal has experienced a significant increase in returns-to-scale (RTS) in production in recent years during the process of growing adoptions of agricultural mechanization through the custom-hiring market. Such increase in RTS has primarily strengthened the linkages between factor endowment heterogeneity (across farm households) and their specialization behaviors in labor, land, and the agricultural capital market. Both cross-section and panel-data of households in Nepal extracted from Nepal Living Standards Surveys are used to generate this evidence. We find that rising RTS associated primarily with tractor use growth has been inducing greater exploitations of comparative advantages; agricultural households have been increasingly specializing in exchanges of production factors, services, and outputs, in ways consistent with predictions based on their relative factor endowments. Specifically, the rise in RTS has induced households with more labor, land, and capital endowments to rent out their labor, land, and credit, respectively, within the agricultural sector, while increasingly renting-in the other factors with which they are less endowed. The results suggest that understanding factor endowments heterogeneity among agricultural households is becoming increasingly important for effective agricultural policy designs in countries like Nepal, where employment shares in the agricultural sector remain high despite the growth in mechanization.
    Keywords: NEPAL; SOUTH ASIA; ASIA; returns; factors; agricultural mechanization; productivity; households; returns to scale; agricultural transformation; comparative advantages; factor endowments heterogeneity; random-effects Tobit
    Date: 2020
  15. By: Stéphane Lemarié (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Valérie Orozco (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jean-Pierre Butault (ECO-PUB - Economie Publique - AgroParisTech - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Antonio Musolesi (Department of Economics and Management - University of Ferrara); Michel Simioni (UMR MOISA - Marchés, Organisations, Institutions et Stratégies d'Acteurs - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - CIHEAM-IAMM - Centre International de Hautes Etudes Agronomiques Méditerranéennes - Institut Agronomique Méditerranéen de Montpellier - CIHEAM - Centre International de Hautes Études Agronomiques Méditerranéennes - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Bertrand Schmitt (CESAER - Centre d'Economie et de Sociologie Rurales Appliquées à l'Agriculture et aux Espaces Ruraux - AgroSup Dijon - Institut National Supérieur des Sciences Agronomiques, de l'Alimentation et de l'Environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper analyses the economic impact of agricultural research on productivity in France over the period 1959-2012. Adopting a dynamic time series model, we provide evidence that the impact of French agricultural research is in the range of values estimated for other countries, with the estimated long-run elasticity being 0.16, which corresponds to an internal rate of return of 22%. The estimated elasticity decreases at the beginning of the 1970s. Complementary analyses are developed to take into account the evolution of the priorities of public agricultural research (reorientation towards more fundamental objectives and focus on broader objective than productivity enhancement).
    Keywords: research lags,agricultural R&D,economic impact of agricultural research,knowledge stocks,France,dynamic time series.
    Date: 2020
  16. By: Luis Sarmiento
    Abstract: I assert that air pollution from nitrogen oxides affects the productivity of employees in Mexican court hearings. This is the first article analyzing this connection and the first to disentangle work-breaks from the productivity of white-collar workers. I merge hourly pollution with granular hearing data under the assumption that the length of the hearing approximates productivity and identify causality from panel and instrumental variable techniques. Results show a loss of 3.83 workdays during the sample period due to the productivity shock stemming from comparing exposure at the hours with the highest and lowest concentration of nitrogen oxides in the data-set.
    Keywords: Air pollution, nitrogen oxides, productivity, labor market effects
    JEL: C23 J24 Q53
    Date: 2020
  17. By: Lee,Yoonsoo
    Abstract: The Korean manufacturing sector has undergone active structural transformation in the past few decades. In particular, the composition of core manufacturing products has changed over time. In the 1970s, textiles, which are used to produce fabric, clothes, apparel, and shoes, were the main product. Over time, the value added shares have shifted toward electronics, ships, and cars. By analyzing plant-level microdata, this paper documents the patterns of entry, exit, job creation and destruction, and the growth of young plants during the industrial shift. This industrial shift involved active job reallocations, as well as the entry and exit of plants. The paper quantifies the extent to which such plant-level dynamics explain aggregate productivity growth. The findings show that within-plant productivity growth, which includes the effects of fast growth of young plants as well as robust growth of large continuing plants, played an important role in the productivity growth of the Korean manufacturing sector. The contribution of reallocations between continuing plants was relatively small. Moreover, productivity growth of an industry accompanied an increase of productivity dispersion, a measure commonly interpreted as the degree of misallocation.
    Keywords: Food&Beverage Industry,General Manufacturing,Textiles, Apparel&Leather Industry,Pulp&Paper Industry,Common Carriers Industry,Construction Industry,Business Cycles and Stabilization Policies,Plastics&Rubber Industry,Transport Services,Labor Markets
    Date: 2020–06–15
  18. By: Ku, Hyejin (University College London)
    Abstract: We examine worker effort as a potential margin of adjustment to a minimum wage hike using unique data on piece rate workers who perform a homogenous task and whose individual output is rigorously recorded. By employing a difference-in-differences strategy that exploits the increase in Florida's minimum wage from $6.79 to $7.21 on January 1, 2009, and worker location on the pre-2009 productivity distribution, we provide evidence consistent with incumbent workers' positive effort responses.
    Keywords: minimum wage, incentive, effort, labor productivity
    JEL: J20 J38 M50
    Date: 2020–06
  19. By: Li, Zhan
    Abstract: We first follow the standard approaches (OECD, 2001) to measure capital and labor services in China during the time period of 1980-2016 using the China Industrial Productivity database, and then investigate the influences of replacing factors services with their stocks, which is often adopted in current studies, on total factor productivity (TFP) growth. We also investigate the resource reallocations and their impacts on TFP growth, and further trace their industry origins. The results show that by taking quality changes into account, the annual growth rates of capital service and labor service are 12.30% and 3.56%, respectively. The economy-wide capital quality declines by 3.68% while labor quality increases by 34.10%. Consequently, the aggregate TFP growth of China is underestimated by 6.58% when only replacing capital service with capital stock, while it is overestimated by 50% when only replacing labor service with labor stock and is overestimated by 43.42% when replacing both capital and labor services with their stocks. There are barriers to factor mobility that cause resources misallocation in China, which could be corrected by following market mechanisms. The net reallocation of capital and labor contributes 60.53% to the aggregate TFP growth. Industries with high (or low) factor input growth and high (or low) factor service price contribute to the improvement of factor allocation while those with high (or low) factor input growth and low (or high) factor service price are responsible for the negative reallocation of factor inputs.
    Keywords: Inputs services, Inputs quality, Aggregate production possibility frontier, China Industrial Productivity database, Resource reallocation
    JEL: C82 O11 O47 O53
    Date: 2020–03

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