Productivity Measurement in the Presence of Poorly Priced Goods

Young (1995) estimated Total Factor Productivity (TFP) growth for Hong Kong, Taiwan, Singapore and South Korea. He reported moderate growth rates for these four regions. This means that rapid growth of GDP in these four economies is due mainly to fast increase of inputs. Young (2000) also estimated the TFP growth rate of China to be 1.4% per year during the period of 1978 to 1998. Similar to his claim for the four \u27Asian Tigers\u27, he concluded that \u27the productivity performance of the non-agricultural economy (of China) during the reform period is respectable, but not outstanding.\u27 China\u27s real GDP grew at about 9% every year during that period. Is this extraordinary growth rate only due to factor accumulation? Or is it to a large degree due to improved efficiency and innovations? To answer this question, this study uses a panel dataset of real GDP, capital stock, and labor force for 30 provinces for 1978 to 1998 to estimate the TFP for the Chinese economy. Two approaches are used to estimate the aggregate production technology: a fixed-effects model and a stochastic frontier model. Our results are consistent across models indicating a TFP growth rate of 4.9% and 3.3% respectively. Both estimates are higher than Young\u27s 1.9%. Our estimates also indicate that national average of TFP\u27s contribution to GDP growth amount to 41.3% and 38.7%, respectively. Other results of interest indicate that capital has contributed more than labor to GDP growth and that technological change has been labor using