What Drives the Volatility of Firm Level Productivity in China?

The enterprise reforms of the 1990s profoundly changed the structure of the economy in China. Using a firm-level dataset collected annually during the period of 1998–2007, this paper examines the variation of productivity volatility across firms of different characteristics as well as its evolution over time, and investigates the sources of productivity volatility at the firm level. The results suggest that in general, productivity volatility at the firm level declined over time in China. Large firms, old firms, foreign firms, and firms located in the coastal provinces are less volatile. Firm size and location are the two major factors that drive changes in productivity volatility – one in a positive way and one in a negative way. While the gaps of volatility between smaller firms and larger firms declined, the gaps between firms located in the coastal provinces and inland provinces increased