Productivity, scale effect and technological catch‐up in Chinese regions
| Published date | 21 June 2011 |
| DOI | https://doi.org/10.1108/17544401111143427 |
| Date | 21 June 2011 |
| Pages | 64-80 |
| Author | Selin Özyurt,Jean‐Pascal Guironnet |
| Subject Matter | Economics |
Productivity, scale effect
and technological catch-up
in Chinese regions
Selin O
¨zyurt
European Central Bank, International Policy Analysis Division,
Franfurt, Germany, and
Jean-Pascal Guironnet
University of Caen, Caen, France
Abstract
Purpose – The purpose of this study is to investigate the driving forces of China’s recent rapid
economic growth and its sustainability in the future.
Design/methodology/approach – A stochastic production frontier approach is employed in order
to investigate regional productivity performances of Chinese provinces over the period 1994-2006.
Findings – Despite the general concern of widening regional inequalities in China, the findings show
a striking trend of convergence among Chinese provinces over the last decade. The empirical results
also reveal a significant contribution of foreign direct investment and foreign trade to economic
growth. From a macroeconomic point of view, the strong trend of economic convergence among
regions could give evidence on the sustainability of rapid economic growth in China in the near future.
In addition, the empirical findings show that Chinese provinces tend to compensate negative scale
effects by rising productive efficiency through technological progress.
Research limitations/implications – Further investigation of the non-neutrality of technological
component can yield a better understanding of the underlying convergence mechanism.
Practical implications – That is to say, policy makers should pursue their initiative to promote
backward regions in western and inland regions and to encourage their economic integration through
the free movement of production factors across regional borders. Further investment in physical and
human capital construction in backward provinces are also needed to stimulate the catch-up process.
Originality/value – The main contribution of this methodology is the ability to introduce various
returns to scale production technology and to decompose regional productivity scores over time into
two major components, namely scale and pure technical efficiencies.
Keywords Chinese economy,Technological change, Stochasticproduction frontier analysis,
Productivity,Scale effect, National economy, Productivity rate, Stochasticprocesses,
Technology ledstrategy, China
Paper type Research paper
1. Introduction
Since the introduction of economic reform policy in the early 1980s, Chinese economy
has experienced a continuous and spectacular economic growth (at an average official
rate of 9.5 per cent). Along with the impressive economic take off, over the past decades,
China has undergone a progressive transition from a centrally planned to a market
economy. Prior to 1978, the country was a totally autarchic economy isolated from the
rest of the world; its governmental policies were mainly directed to insure self-reliance
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
JEL classification – O11, O18, O33, O47
JCEFTS
4,2
64
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 4 No. 2, 2011
pp. 64-80
qEmerald Group Publishing Limited
1754-4408
DOI 10.1108/17544401111143427
and to promote heavy industries. Since 1978, with the implementation of the open-door
policy, China has emerged progressively in the global economy as a major trading
partner. Recently, China is the largest recipient of foreign direct investment (FDI)
among developing countries and the world’s largest exporter. Furthermore, in 2010,
China outpaced Japan to emerge as the world’s second largest economy. Over the last
decades, investigating on the main driving forces and sustainability of Chinese
economic growth has generated growing interest among academics and policy makers.
The neoclassical theory (Solow, 1957) attributes the process of economic growth to
two major sources, namely factor accumulation and total factor productivity (TFP)
growth. Given that capital accumulation is subject to the law of decreasing returns,
neoclassical theory infers that an input-driven economic growth could not be
sustainable in the long-run[1]. That is to say, a sustainable long-term economic growth
should essentially lie on productivity growth generated by innovation and advances in
technology and management.
Three decades after the Solow’s work, the endogenous economic theory (Lucas, 1988;
Romer, 1990) recognised technological progress and human capital development as
main driving forces of sustainable economic growth. However, even if this approach is
theoretically suitable, it generally fails to generate robust empirical results (Aghion and
Howitt, 1998). In this study, our empirical strategy is essentially based on the
neoclassical growth model (Mankiw et al., 1992).
Most growth accounting studies on the East Asian newly industrialized economies
(NIEs) (Kim and Lau, 1994; Young, 1995) infer that the great success of the East Asian
“tigers” has largely been driven by massive factor accumulation, rather than innovative
activities or technological progress. According to Krugman (1994), the input-driven
economic growth in the NIEs could not be sustainable in the long term.
An abundant literature on China’s recent growth experience has progressively
emerged over the last decades. However, so far, the empirical evidence on major driving
forces of China’s rapid economic growth is mixed, even controversial. To name only a
few, Borensztein and Ostry (1996), Hu and Khan (1998) and Chow and Li (2002) detect a
significant contribution of TFP to economic growth, whereas Young (1999) concludes
that the rapid economic growth of China could be essentially attributed to scale effect
rather than innovative activities.
China is a huge country characterised by heterogeneous space and striking economic
disparities between regions and between urban and rural areas. The opening up of
China to the world represents a gradual and spatially uneven process. In addition, in
China economic reform policies favoured coastal regions by introducing a shift from
Mao’s Soviet-style egalitarian regional development policies to preferential policies.
Thereby, since the last decades, widening disparities between inland and coastal
regions as well as between urban and rural areas within the same regions became a
rising concern on social, political and economic harmony of the country.
The main purpose of this study is to improve our understanding of China’s recent
economic performances by bringing new empirical evidence to the following issues:
.Is China’s economic development sustainable in the near future?
.Does China’s outstanding economic growth performance rely merely on the
increasing use of inputs and scale effects rather than pure technological progress?
.Is the technological gap between Chinese provinces widening over time?
Productivity in
Chinese regions
65
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