Productivity Growth of the Non-Tradable Sectors in China

HKIMR Working Paper No.08/2012

30 Pages Posted: 23 Mar 2012

See all articles by Dong He

Dong He

Hong Kong Monetary Authority; Hong Kong Institute for Monetary Research (HKIMR)

Wenlang Zhang

Independent

Gaofeng Han

Hong Kong Monetary Authority; University of California, Santa Cruz - Department of Economics

Tommy T. Wu

Hong Kong Monetary Authority

Date Written: March 19, 2012

Abstract

Little is known about the total factor productivity of the non-tradable sectors in China. In this paper we estimate productivity growth of the non-tradable sectors by studying the relative price movements of the non-tradable sectors vis-à-vis the tradable sectors, i.e. changes in the internal real exchange rate. We find that prices of the non-tradable sectors have risen significantly faster than those of the tradable sectors, and China’s internal real exchange rate has appreciated at a faster pace than the renminbi real effective exchange rate. We also find the non-tradable sectors have seen much lower productivity growth than the tradable sectors, and such productivity differentials are large when compared to other economies. We argue that if productivity growth in the non-tradable sectors remains slow, China will likely see more difficulty in rebalancing its growth pattern and higher inflationary pressures in the medium term. As such, it is important for the authorities to take policy actions to raise productivity growth in the non-tradable sectors.

Keywords: Tradable and Non-Tradable Sectors, Internal Real Exchange Rate, Total Factor Productivity

JEL Classification: E31, F31, F43

Suggested Citation

He, Dong and Zhang, Wenlang and Han, Gaofeng and Wu, Tommy T., Productivity Growth of the Non-Tradable Sectors in China (March 19, 2012). HKIMR Working Paper No.08/2012. Available at SSRN: https://ssrn.com/abstract=2025802 or http://dx.doi.org/10.2139/ssrn.2025802

Dong He

Hong Kong Monetary Authority

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Hong Kong Institute for Monetary Research (HKIMR)

3 Garden Road, 8th Floor
Hong Kong
China

Wenlang Zhang (Contact Author)

Independent ( email )

No Address Available

Gaofeng Han

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

University of California, Santa Cruz - Department of Economics ( email )

Santa Cruz, CA 95064
United States

Tommy T. Wu

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre
8 Finance Street, Central
Hong Kong
Hong Kong

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