Alternative Estimates of TFP Growth in China: Evidence from Application of the Dual Approach

Whether or not Total Factor Productivity (TFP) growth is playing a significant role in China’s recent economic growth is an important issue from several points of view. The first concerns sustainability of growth. As emphasized by Young (1995), Krugman (1994), and others, growth driven by input accumulation may soon hit the limits of diminishing returns and prove not sustainable. By contrast, growth driven primarily by productivity growth may be more sustainable. Second, findings regarding relative contribution of input accumulation and productivity can be useful in formulating policies necessary to confront rising regional inequality that has now become a well recognized problem in China. A finding showing the importance of TFP growth may indicate that mere channeling of investment into lagging provinces may not ensure their faster growth unless the investment is associated with productivity growth. These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.