Working Papers
Non-neutral Technological Change in Chinese Manufacturing [Job Market Paper]
Abstract: Between 1998 and 2008, during a period of state-owned enterprises reforms to improve efficiency, firms in Chinese manufacturing experienced rapid revenue growth and significant shifts in input factor usage and cost shares, providing strong evidence of biased technological change. This paper develops a novel method for estimating production function with firm-level factor-augmenting productivity, for capital, labor, and materials inputs. The estimates indicate an elasticity of substitution of 0.32 in Chinese manufacturing. Labor-augmenting productivity increased fastest at an annual growth of 12.2% and demonstrated a high level of persistence, followed by capital-augmenting productivity at 4.9% and material-augmenting productivity at 1.4%. In addition, substantial heterogeneity in the rates of technological change is observed across manufacturing sectors. Decomposition results show that survivors drive most of the aggregate factor-augmenting productivity changes, while entrants positively impact capital productivity and exit enhance labor productivity by removing inefficient firms.