Structural change, productivity growth and industrial transformation in China

China's industry has experienced robust growth under persistent structural reform since 1978. By estimating the stochastic frontier sectoral production function, we find that the TFP growth has exceeded the quantitative growth of inputs since 1992, but the contribution of productivity to output growth declines after 2001. Using a decomposition technique, we then find that the structural change has contributed to TFP and output growth substantially but also decreasingly over time. Empirical analysis reveals that the reforms in factor markets and industrial structure significantly account for the overall trend and the sectoral heterogeneity of factor allocative efficiency during the industrial transformation process.

Research Highlights► We measure structural effect by the productivity growth due to factor reallocation. ► The structural effect decreases over the reform period and differs across sectors. ► Industrial structural reform and productivity estimates in China are reviewed. ► The industrial structural reform can account for the change of structural effect.