Structural Transformation and Growth in China: 19782004

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Structural Transformation and Growth in China
1978-2004

• Loren Brandt (U. of Toronto)
• Chang-Tai Hsieh (Berkeley)
• Xiaodong Zhu (U. of Toronto)
• Preliminary and incomplete
• For seminar at CCER, Beijing University
• October 11, 2006

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Growth Rates of Output per Worker
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Observations

• Labor productivity grew faster in agriculture
  than in non-agriculture
• Alwyn Young (2003) made similar observation and
  concludes To the degree that the reforms have
  improved efficiency, these gains may lie
  principally in agriculture

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Observations

• Labor productivity grew faster in agriculture
  than in non-agriculture
• Alwyn Young (2003) made similar observation and
  concluded To the degree that the reforms have
  improved efficiency, these gains may lie
  principally in agriculture
• But, aggregate labor productivity grew faster
  than that in both sectors

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Observations

• Labor productivity grew faster in agriculture
  than in non-agriculture
• Alwyn Young (2003) made similar observation and
  concludes To the degree that the reforms have
  improved efficiency, these gains may lie
  principally in agriculture
• But, aggregate labor productivity grew faster
  than that in both sectors
• positive contribution of labor
  reallocation

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Objectives of the paper

• Providing a quantitative account of structural
  transformation in China

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Objectives of the paper

• Providing a quantitative account of structural
  transformation in China
• Quantifying the contribution of structural
  transformation to growth

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Objectives of the paper

• Providing a quantitative account of structural
  transformation in China
• Quantifying the contribution of structural
  transformation to growth
• Quantifying the impact of various labor market
  barriers on growth and structural transformation

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Data

• Significant revisions of official data
• We use separate deflators for each of the three
  sectors in calculating real GDP
• Similar to Alwyn Youngs method, but we construct
  our own service sector deflator instead of using
  the service component of CPI
• We construct our own series of employment in the
  primary sector. Official series significantly
  underestimate labor reallocation.

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Decomposing aggregate labor productivity
growthsimple accounting
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Two driving forces of labor reallocation

• Productivity growth in agriculture
• Without the growth, fraction of labor force in
  agriculture in 2004 would be 54 instead of 32
• Reduction in barriers
• Without the reduction, fraction of labor force in
  agriculture in 2004 would be 41 instead of 32

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Counterfactual exercises
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Conclusions

• TFP growth in agriculture the main factor for
  labor reallocation. However, modest contribution
  to overall growth (about 1).

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Conclusions

• TFP growth in agriculture the main factor for
  labor reallocation. However, modest contribution
  to overall growth (about 1).
• Reduction in labor market barriers another factor
  for labor reallocation. More important, it
  contributed significantly to overall growth (more
  than 2) by allowing for more efficient
  allocation of resources---especially capital.

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Conclusions

• TFP growth in agriculture the main factor for
  labor reallocation. However, modest contribution
  to overall growth (about 1).
• Reduction in labor market barriers another factor
  for labor reallocation. More important, it
  contributed significantly to overall growth (more
  than 2) by allowing for more efficient
  allocation of resources---especially capital.
• The single most important factor for Chinas
  growth over the last two and half decades is the
  TFP growth of the non-state sector (more than
  4.5).

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Conclusions

• TFP growth in agriculture the main factor for
  labor reallocation. However, modest contribution
  to overall growth (about 1).
• Reduction in labor market barriers another factor
  for labor reallocation. More important, it
  contributed significantly to overall growth (more
  than 2) by allowing for more efficient
  allocation of resources---especially capital.
• The single most important factor for Chinas
  growth over the last two and half decades is the
  TFP growth of the non-state sector (more than
  4.5).
• There are still significant barriers, which
  prevent more efficient allocation of capital.