Servicification of Investment and Structural Transformation: The Case of China

53 Pages Posted: 31 Oct 2017 Last revised: 7 Feb 2018

See all articles by Kaiming Guo

Kaiming Guo

Sun Yat-Sen University (SYSU) - Lingnan (University) College

Jing Hang

University of California, Los Angeles (UCLA) - Department of Economics

Se Yan

Peking University - Guanghua School of Management

Date Written: February 7, 2018

Abstract

Structural transformation is a key feature of economic development. Traditional literature attributes it to changes in the sectoral composition of consumption. Different from it, we argue that the "servici fication" of investment goods, which is induced by investment-specific technological change, becomes an increasingly important reason for structural transformation, particularly for the rise of the services economy. Our study of the input output tables finds that the share of service inputs in investment goods have grown significantly in many countries since the 1980s, especially for investment-intensive economies such as China. To assess if the investment channel is quantitatively significant, we build a standard model with three broad sectors, but instead add an investment production function employing factors from all three sectors. Moreover, we incorporate investment-specific technological change by allowing the productivities of the three sectoral inputs to evolve over time. We calibrate the model to the Chinese economy from 1981-2014 and perform counter-factual experiments accordingly. We find that the technological change in the investment sector accounts for 33.1 percent decline in employment share of agriculture, 36.0 percent increase in employment share of manufacturing and 31.5 percent increase in employment share of services over the period. The magnitude of this effect on the share of services keeps growing, particularly after 2000. Our findings are not unique for China, but also apply to other economies experiencing "servici fication" of investment sector.

Keywords: Structural Transformation, Investment, China

JEL Classification: O11, O41

Suggested Citation

Guo, Kaiming and Hang, Jing and Yan, Se, Servicification of Investment and Structural Transformation: The Case of China (February 7, 2018). Available at SSRN: https://ssrn.com/abstract=3061631 or http://dx.doi.org/10.2139/ssrn.3061631

Kaiming Guo (Contact Author)

Sun Yat-Sen University (SYSU) - Lingnan (University) College ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Jing Hang

University of California, Los Angeles (UCLA) - Department of Economics ( email )

8283 Bunche Hall
Los Angeles, CA 90095-1477
United States

Se Yan

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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