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GVC Seminar Series No. 3: Left-truncated Firm-level Data and Sources of China’s TFP Growth

GVC Seminar Series No. 3

Left-truncated Firm-level Data and Sources of China’s TFP Growth

王文雅 (WANG Wenya)

School of Finance

Shanghai University of Finance and Economics

Venue: Keyan 429 (科研楼配楼429) Time: Nov.7th 3:30 to 5:00pm


  This paper decomposes China’s fast aggregate manufacturing productivity growth into firm-level technological growth, intensive reallocation of inputs across existing firms and extensive reallocations through net entry. Following Baily, Hulten, and Campbell (1992)’s approach of aggregate productivity decomposition, I find that extensive reallocation accounts for 93% and 144% of 5-year aggregate productivity growth in 1998-2003 and 2002-2007, using China Industrial Enterprise Survey (CIES). In contrast, intensive reallocation contributes -10% and -93% to the growth. These estimates are however biased by the left-censoring problem in the CIES, which imposes 5 million yuan sales for non state owned firms to be included and consequently treat reallocation among existing firms as entry and exit. I propose a methodology accordingly to recover the three sources of growth in China’s manufacturing sector. I find that when China’s data is taken as the manufacturing universe, the role of extensive reallocation in aggregate productivity growth is overstated by a quarter to two thirds during 1998-2003 and 2002-2007. Most of the overstated magnitude in extensive reallocation is picked up by the intensive reallocation among existing firms who enter and exit from the data. Compared to U.S., intensive reallocation in China’s manufacturing sector is still weaker, but stronger than that directly implied in the CIES. This also indicates that the left-censoring problem in many other countries should be taken into account when analyzing micro-level sources of aggregate productivity growth across countries.