The Industry Origins of Resource Misallocation and Its Influences on Total Factor Productivity

Abstract

Abstract: Based on the database of Chinese Economic Sector Productivity that covers all industries, this paper adopts Jorgenson’s growth accounting approach to measure the growth rate of total factor productivity (TFP) in China, and incorporates the reallocation effects of capital and labor inputs into the accounting framework to examine their impacts on TFP. Then, this paper decomposes the reallocation effects of capital and labor into factor inputs’ growth rate and service prices to explore their industry origins and causes. The results show that from 1978 to 2018, the average annual growth rate of China’s TFP was 0.90%, of which 0.32% came from the net effect of capital and labor reallocation, which contributed nearly 40% of China’s TFP growth rate. By decomposing the reallocation effects of capital and labor into the industrial level, the findings reveal that the misallocation phenomenon in China’s capital market is mainly due to the inflow of a large amount of capital into the service sector, whose returns are relatively lower. The main reason for the higher efficiency of labor allocation is that most laborers flow from the agriculture sector with lower returns into the industrial and service sectors with higher returns.

Key words: growth accounting, resource misallocation, industry origins, total factor productivity

CLC Number:

F061.2

LI Zhan. The Industry Origins of Resource Misallocation and Its Influences on Total Factor Productivity[J]. Contemporary Finance & Economics, 2021, 0(6): 3-11.

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