How Important Was Labor Reallocation for China's Growth? A Skeptical Assessment

25 Pages Posted: 16 Nov 2018

See all articles by Longfeng Ye

Longfeng Ye

Independent

Peter E. Robertson

The University of Western Australia

Date Written: December 2018

Abstract

Numerous studies report the growth effects from labor reallocation in China to be in the order of 1–2 percentage points per year, which would appear to be a significant fraction of China's per capita income growth. We show that the total factor productivity gains are an order of magnitude smaller, at only 0.25 percentage points per year. There are two reasons for this difference. First, the majority of studies have used a decomposition method that effectively assumes linear production functions. This results in values that are much larger than the more appropriate Denison–Kuznets method. Second, we also allow for sectoral differences in human capital. We conclude that the gains from labor reallocation may have been a far less important source of China's growth than is conventionally thought.

Keywords: China, dual economy, economic growth, productivity, structural change

Suggested Citation

Ye, Longfeng and Robertson, Peter E., How Important Was Labor Reallocation for China's Growth? A Skeptical Assessment (December 2018). Review of Income and Wealth, Vol. 64, Issue 4, pp. 828-852, 2018. Available at SSRN: https://ssrn.com/abstract=3285382 or http://dx.doi.org/10.1111/roiw.12301

Longfeng Ye (Contact Author)

Independent ( email )

No Address Available

Peter E. Robertson

The University of Western Australia ( email )

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