China KLEMS

The First WORLD KLEMS Conference

Harvard University

18-20 October 2010

Ren RuoenSun Linlin

BeiHang University, China .

Motivation

Whether China’s rapid growth after 1978 is mainly driven by productivity or factor accumulation.

• Mostly existing studies of China TFP using aggregate data.

• This project estimated TFP based on industry data Pursue the guidelines about the policy making for

improving industry international competitiveness Analyze the industry contribution to aggregate TFP Find what is the predominant source of China

industry economic growth (input growth or productivity)

Goals

• Compute industry TFP based on the estimation of output, capital input, labor input and intermediate input index

• Quantify input and TFP contributions to output growth for each industry

• Highlight data and conceptual issues with industry data

Background

• In 1986 when I was working on my Ph.D. dissertation I knew Professor Jorgenson’s papers on rental cost and investment function. In 1988 I started to work on the expenditure-side purchasing power parity (PPP) estimates between China and US, using ICP approach. This study was published in Review of Income and Wealth as Ren Ruoen and Chen Kai 1994. An Expenditure - based Bilateral Comparison of Gross Domestic Product between China and the United States.

Background

In 1993 I started to work on the production-side purchasing power parity (PPP) estimates between China and US, using ICOP approach and built the time series of comparative labor productivity between the two countries.

Background

This study was published by China Economic Review as Adam Szirmai and Ren Ruoen 2000. Comparative Performance in Chinese Manufacturing, 1980-1992.

Since 1994 I started to write a book (Ren Ruoen 1997. China's Economic Performance in an International Perspective) for the OECD Development Centre. In this book, I reconciled the two studies on PPPs from expenditure and production sides to develop a estimate of China’s GDP in US dollar and update it through 1994.

Background

• The first phase of the current project is ICPA -project funded by the Research Institute of Economy, Trade and Industry (RIETI), Tokyo, Japan, National Natural Science Foundation of China (grant no. 70173029, 70531010, 70521001) and the U.S. Environmental Protection Agency (EPA Work Order 3W-0258-NASX).

Background

• The ICPA –project has been focusing on an international comparison of productivity among Pan-Pacific countries to undertake a broad examination of the sources of economic growth and competitiveness through large-scale, internationally comparable databases of Pan-Pacific countries since 2001.

Background

• The estimation result is given in a chapter on the China in the book on Productivity in Asia: Economic Growth and Competitiveness edited by Dale Jorgenson, Masahiro Kuroda and Kazuyuki Motohashi, published by Edward Elgar Publishing in 2006 and in Cao, J., M. Ho, D. Jorgenson, R. Ren, L. Sun, X. Yue (2009) “Industrial and Aggregate Measures of Productivity Growth in China, 1982-2000,” Review of Income and Wealth, Volume 55, issue s1, 2009

Background

• The second phase of the current project is an international cooperation project on “International Comparison of Productivity among China, EU Countries and US and IGEM Study for China” funded by National Natural Science Foundation of China (grant no. 70620120444 )

Industry Productivity

• The method used in this study is described in detail in many book and papers (see Jorgenson, Gollop and Fraumeni, 1987, Jorgenson and Stiroh 2000, and Gu and Ho 2000, Jorgenson et al., 2005).

• The economy is divided into 33 sectors producing 33 different commodities.

Industry Productivity

• Gross output of sector j is assumed to be produced with a Hicks-neutral production function:

• Productivity growth

ln ln ln ln lnKjt Ljt Zjtjt jt jt jt jtd Y v d K v d L v d Z d A

1 1 1( ,.... , ,.... , ,.... )

1 33

jt jt jt kjt jt ljt jt njtY A f K K L L Z Z

j industries

Value-added Function

• The real value added of sector j is defined as output less an index of intermediate inputs :

• The following identity is implied:

ln ln lnjt Vjt jt Zjt jtd Y v d V v d Z

ln ln ln lnVjt jt Kjt jt Ljt jt jt

Kjt jt Ljt jtVjt

Yjt jt

v d V v d K v d L d A

P K P Lv

P Y

Input Index

• Express the growth rate of each input as the weighted average of the growth rates of individual components:

• Weights are given by the average shares of each component

1 1ln ln (ln ln ) X={K, L, Z} tt t t t

i iii

X X X Xv

Input Output Series

• First phase: Construct the output and input indices for sectors during 1981-2000.

•

• Second phase: Update the time series to 2005.

Input Output Series

• The NBS used the Material Product System (MPS) before 1987.

• Transformed to the System of National Accounts (SNA) after 1987.

• The IO time series were constructed with the National Bureau of Statistics of China.

Input-Output Time Series (First phase)• Compiled annual nominal value of industry input and

industry value-added, the final uses for total consumption, investment and net exports, for 1981-2000.

• Constructed 4 current value benchmark I-O tables (1981,1987, 1992, 1997) including A tables and U tables Consistent with the coverage and definitions of the 1997 I-O table and

scaled to the latest GDP series

• Constructed the 1981-2000 current value U tables based on the 4 benchmark tables

• Constructed the 1981-2000 real value U tables based on the current value U tables and price indices

• Estimated output and intermediate input index time series based on the I-O tables

Input-output series (Second Phase)

• Based on the suggestions made in our 

workshop on Oct. 12, 2009, we made some 

updates to our comparable Input-output table series .

•  We compiled the IO table series from 2000 to 2005, based on the new 2005 extended IO table and 2004 Census coverage and results. we updated the former 1981 to 1999 IO table series into the same standard of the second phase.

Input-output series (Second Phase)

• The 2007 benchmark IO table has been published and has been changed in coverage and other details from the 2005 extended IO table. 

• If we decide to expand our comparable IO table series till  2007, we need cooperate with NBS team to look into all the differences between  our IO series and their new 2007 

benchmark table and  build up a new comparable IO series from 1981

  to 2007.

Industry Output Index Results

Wide range of industry output growth rates varies from -0.176%(oil and gas extraction) to 22.10%

(electrical machinery) We compare two sub-period, 1982-1994,1994-2005. Some industry output growth decelerate Food and kindred products(11% to 7%); Apparel(19% to 7%); Paper

and allied(19% to 11%); Leather(19% to 9%）；Communication(17% to 0%); Finance(15% to 2%).

Some industry output growth acceleratePetroleum and coal products(4% to 11%); Primary metal(9% to 14%);

Transportation(9% to 14%); Electric utilities(

9% to 14%)

-2.00-1.000.001.002.003.004.005.006.007.008.009.00

10.0011.0012.0013.0014.0015.0016.0017.0018.0019.0020.0021.0022.0023.0024.00

04 O

il an

d ga

s ex

trac

tion

01 A

gric

ultu

re

14 P

etro

leum

and

coa

l pro

duct

s

33 P

ublic

ser

vice

03 M

etal

and

non

-met

allic

min

ing

02 C

oal m

inin

g

27 C

omm

unic

atio

ns

07 T

extil

e m

ill p

rodu

cts

31 F

inan

ce In

sura

nce

and

Rea

l Est

ate

06 F

ood

and

kind

red

prod

ucts

05 C

onst

ruct

ion

25 M

isc.

man

ufac

turin

g

24 R

ubbe

r an

d m

isc

plas

tics

30 T

rade

29 G

as u

tiliti

es

28 E

lect

ric u

tiliti

es

13 C

hem

ical

s

26 T

rans

port

atio

n

17 P

rimar

y m

etal

18 F

abric

ated

met

al

16 S

tone

, cla

y, g

lass

32 O

ther

priv

ate

serv

ice

10 F

urni

ture

and

fixt

ures

09 L

umbe

r an

d w

ood

19 M

achi

nery

, non

-ele

ct

08 A

ppar

el

22 T

rans

port

atio

n eq

uipm

ent &

ord

nanc

e

23 In

stru

men

ts

12 P

rintin

g, p

ublis

hing

and

alli

ed

15 L

eath

er

21 M

otor

veh

icle

s

11 P

aper

and

alli

ed

20 E

lect

rical

mac

hine

ry

Industry output Growth(%)1981-2005

Note: Industries sorted by growth, in percentage points. Annex Table A1 in text.

Industry Intermediate Input Index Results

• Wide range of industry intermediate input and energy input growth rates varies from 7.93%(textile) to 18.08% (electrical

machinery) Varies from -0.52%(public service) to 14.16%(electrical

machinery)

• Intermediate input experienced stronger growth than capital input and labor input.

Industry Intermediate Input Index (%)1981-2005

0.001.002.003.004.005.006.007.008.009.00

10.0011.0012.0013.0014.0015.0016.0017.0018.0019.00

text

ile m

ill p

rodu

cts

agric

ultu

re

trad

e

publ

ic s

ervi

ces

food

s an

d ki

ndre

d pr

oduc

ts

rubb

er a

nd m

isc

plas

tics

oil a

nd g

as e

xtra

ctio

n

com

mun

icat

ion

mis

c m

fg

chem

ical

met

al a

nd n

onm

etal

lic m

inin

g

finan

ce in

sura

nce

and

real

est

ate

cons

truc

tion

fab.

,met

al

mot

. Veh

petr

oleu

m a

nd c

oal p

rodu

cts

prim

. Met

al

lum

ber

tras

p. E

quip

and

ord

nanc

e

coal

min

ing

mac

hine

ry

furn

iture

prin

ting

inst

rum

ent

appr

al

ston

e cl

ay ,g

lass

tran

spor

tatio

n

othe

r pr

ivat

e se

rvic

es

pape

r

leat

her

gas

elec

tric

al

elc.

Mac

hine

ry

Note: Industries sorted by growth, in percentage points.

Industry Energy Input Index (%)1981-2005

-2.00-1.000.001.002.003.004.005.006.007.008.009.00

10.0011.0012.0013.0014.0015.00

public

serv

ices

com

munic

atio

n

trasp. E

quip

and o

rdnance

agricultu

re

chem

ical

transport

atio

n

petr

ole

um

and c

oal p

roducts

finance in

sura

nce a

nd r

eal e

sta

te

instr

um

ent

trade

prim

. M

eta

l

oil

and g

as e

xtr

actio

n

lum

ber

constr

uctio

n

ele

ctr

ical

machin

ery

sto

ne c

lay ,gla

ss

fab. ,m

eta

l

oth

er

private

serv

ices

coal m

inin

g

furn

iture

textil

e m

ill p

roducts

rubber

and m

isc p

lastic

s

foods a

nd k

indre

d p

roducts

meta

l and n

onm

eta

llic m

inin

g

mis

c m

fg

mot. V

eh

printin

g

gas

leath

er

paper

appra

l

elc

. M

achin

ery

Note: Industries sorted by growth, in percentage points.

Labor Input Index

• Labor input is a divisia aggregate over workers distinguished by sex, age and education attainment using wages as weights.

• Sex: male, female• Educational attainment: college, high school, junior

high school, elementary school, no schooling.• Age: 16-34, 35-54, 55+

Labor input index

• Number of workers for benchmark is based on the Population Cencuses(1982,1990,2000), and Sample Population Surveys(1987,1995,2005).

• Number of workers of other years is estimated from the Labor Force of Society （ prior to 1990), the annual Population Change Surveys (since 1990).

• Hours data is from the 1995 Sample Population Survey, and incorporate the changes in institutional arrangement.

• Relative costs of different workers using the Chinese Household Income Project (CHIP) Surveys.

• Sum of different categories of workers is equal to the labor compensation of IO table for each industry.

Industry labor Input Index results

• Wide range of industry labor input growth rates varies from 1.18%(metal and nonmetallic

mining) to 13.16%(gas utilities)Larger labor growth for labor intensive

manufacturing (such as apparel, leather, lumber and wood), as well as energy sectors (gas , electrical), some service( communication , finance).

• We compare two sub-period, 1982-1994,1994-2005.

Labor input increase for all service industry. Labor input fell for agriculture, mining sectors,

and some manufacturing (chemical, machinery).

Industry Labor Input Index (%)1982-2005

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

11.00

12.00

13.00

14.00

met

al a

nd n

onm

etal

lic m

inin

g

mac

hine

ry

inst

rum

ent

ston

e cl

ay ,g

lass

agric

ultu

re

coal

min

ing

text

ile m

ill p

rodu

cts

chem

ical

mis

c m

fg

furn

iture

pape

r

fab.

,met

al

food

s an

d ki

ndre

d pr

oduc

ts

prim

. Met

al

petr

oleu

m a

nd c

oal p

rodu

cts

oil a

nd g

as e

xtra

ctio

n

prin

ting

rubb

er a

nd m

isc

plas

tics

cons

truc

tion

tran

spor

tatio

n

publ

ic s

ervi

ces

othe

r pr

ivat

e se

rvic

es

elec

tric

al

elc.

Mac

hine

ry

trad

e

lum

ber

leat

her

appr

al

tras

p. E

quip

and

ord

nanc

e

finan

ce in

sura

nce

and

real

est

ate

com

mun

icat

ion

mot

. Veh

gas

Note: Industries sorted by growth, in percentage points.

Capital Input Index

• Estimated the capital stock under the Perpetual Inventory Method with the geometrically declining pattern, classified by asset type – structure, equipment and auto

• Estimated the capital rental price with the help of the property compensation from the input-output series

• Aggregation of capital services over different asset types with the weight of capital rental price

Capital input index

• We adjust the “fixed asset investment” to “gross capital formation” of each industry.

• Asset price index comes from the NBS, the IO table series.

• Depreciation rate is estimated base on the asset life assumption.

• We estimate the land capital stock for agriculture.

• We consider the self-employed compensation problem during the internal rate of return estimation.

Industry Capital Input Index Results

• Wide range of industry capital input growth rates, service had a high capital accumulation speed. varies from 1.02%(machinery) to 15.91%

(communication)• We compare two sub-period, 1982-1994,1994-

2005. Most manufacturing experience higher capital input.

(apparel, lumber, furniture, paper, instrument, etc). Only few industries experience lower capital input.(metal and nonmetallic mining, oil and gas extraction,

finance insurance and real estate, other private services).

Industry Capital Input Index (%)1981-2005

0.001.002.003.004.005.006.007.008.009.00

10.0011.0012.0013.0014.0015.0016.0017.00

mac

hine

ry

agric

ultu

re

coal

min

ing

inst

rum

ent

rubb

er a

nd m

isc

plas

tics

tras

p. E

quip

and

ord

nanc

e

trad

e

text

ile m

ill p

rodu

cts

leat

her

furn

iture

prim

. Met

al

fab.

,met

al

prin

ting

met

al a

nd n

onm

etal

lic m

inin

g

chem

ical

lum

ber

petr

oleu

m a

nd c

oal p

rodu

cts

pape

r

mis

c m

fg

cons

truc

tion

appr

al

food

s an

d ki

ndre

d pr

oduc

ts

ston

e cl

ay ,g

lass

tran

spor

tatio

n

oil a

nd g

as e

xtra

ctio

n

mot

. Veh

elec

tric

al

elc.

Mac

hine

ry

com

mun

icat

ion

publ

ic s

ervi

ces

othe

r pr

ivat

e se

rvic

es

gas

finan

ce in

sura

nce

and

real

est

ate

Note: Industries sorted by growth, in percentage points.

Industry TFP Results

• Wide range of industry TFP growth rates varies from -9.71%(oil and gas extraction)

to 6.46%(electrical machinery) Many energy industries (oil and gas

extraction, gas, petroleum and coal products), and some service (finance, public service, communication) show negative TFP growth rate.

Some manufacturing especially ICT manufacturing see high TFP rates.( electrical manufacturing, machinery, motor vehicle, instrument, paper).

Industry TFP Results

• Compare 2 sub-period, 1982-1994,1994-2000.• Some industries TFP slowdown:

apparel, paper, leather, transportation equipment,

transportation, communication.• Few industries TFP accelerate:

coal mining, Primary metal, metal and nonmetallic mining.

Industry TFP Growth(%)1982-2005

-11.00-10.00

-9.00-8.00-7.00-6.00-5.00-4.00-3.00-2.00-1.000.001.002.003.004.005.006.007.008.00

oil a

nd g

as e

xtra

ctio

n

finan

ce in

sura

nce

and

real

est

ate

gas

publ

ic s

ervi

ces

petr

oleu

m a

nd c

oal p

rodu

cts

com

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icat

ion

cons

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tion

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met

al a

nd n

onm

etal

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inin

g

othe

r pr

ivat

e se

rvic

es

food

s an

d ki

ndre

d pr

oduc

ts

mis

c m

fg

appr

al

text

ile m

ill p

rodu

cts

coal

min

ing

agric

ultu

re

leat

her

prim

. Met

al

tran

spor

tatio

n

furn

iture

lum

ber

ston

e cl

ay ,g

lass

fab.

,met

al

chem

ical

rubb

er a

nd m

isc

plas

tics

prin

ting

tras

p. E

quip

and

ord

nanc

e

trad

e

pape

r

inst

rum

ent

mot

. Veh

mac

hine

ry

elc.

Mac

hine

ry

Note: Industries sorted by growth, in percentage points

Domar-Weighted TFP

China has a moderate productivity growth, Domar-weighted TFP growth is estimated at 3.89%. 1987-90, 1995-96 and 1999-2000 experienced

negative domar-weighted TFP TFP acceleration is obvious during the

beginning of reform, 1982-1985.

• Agriculture and electrical machinery – biggest contribution to aggregate TFP among 33 industries agriculture, for the largest average share of

gross output to total value-added over 1982-2005

Electrical machinery, for the fastest TFP growth rate over 1982-2005.

Domar-Weighted TFP

-15.00

-10.00

-5.00

0.00

5.00

10.00

15.0019

82-1

983

1983

-198

4

1984

-198

5

1985

-198

6

1986

-198

7

1987

-198

8

1988

-198

9

1989

-199

0

1990

-199

1

1991

-199

2

1992

-199

3

1993

-199

4

1994

-199

5

1995

-199

6

1996

-199

7

1997

-199

8

1998

-199

9

1999

-200

0

2000

-200

1

2001

-200

2

2002

-200

3

2003

-200

4

2004

-200

5

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

agric

ultu

re

coal

min

ing

met

al a

nd n

onm

etal

lic m

inin

g

oil a

nd g

as e

xtra

ctio

n

cons

truc

tion

food

s an

d ki

ndre

d pr

oduc

ts

text

ile m

ill p

rodu

cts

appr

al

lum

ber

furn

iture

pape

r

prin

ting

chem

ical

petr

oleu

m a

nd c

oal p

rodu

cts

leat

her

ston

e cl

ay ,g

lass

prim

. Met

al

fab.

,met

al

mac

hine

ry

elc.

Mac

hine

ry

mot

. Veh

tras

p. E

quip

and

ord

nanc

e

inst

rum

ent

rubb

er a

nd m

isc

plas

tics

mis

c m

fg

tran

spor

tatio

n

com

mun

icat

ion

elec

tric

al

gas

trad

e

finan

ce in

sura

nce

and

real

est

ate

othe

r pr

ivat

e se

rvic

es

publ

ic s

ervi

ces

Domar-Wtd Productivity Contributions1982-2005

Note: Industries sorted by productivity contribution, in percentage points.

Industry Source of Output Growth

• Input growth: predominant source of output growth in most industries

• Intermediate input growth: primary source of output growth in most industries over 1984-88, 1988-94 and 1994-2000,2000-2005.

• TFP growth: primary source of output in most industries over 1982-84

• Capital input growth: became a more important source of output growth over the four periods

• Labor input growth: few industries relied on labor input as primary source of expansion

Predominant Source of Output Growth

0123456789

10111213141516171819202122232425262728293031323334

82-84 84-88 88-94 94-2000 2000-2005Capital Input Contribution Labor Input ContributionIntermediate Input Contribution TFP growth

industry number

Conclusions

Domar-weighted TFP growth is estimated at 3.89%.

TFP acceleration is obvious during the beginning of reform, 1982-1985.

Agriculture and electrical machinery – biggest contribution to aggregate TFP among 33 industries.

• Intermediate input growth is the most important source of growth

Thank you very much