Firm heterogeneity, biased technological change, and total factor productivity: Evidence from China

• Published in: Journal of productivity analysis Vol. 60; no. 2; pp. 147 - 177
• Main Authors: Gao, Qizheng, Zhang, Jianqing, Chen, Guo
• Format: Journal Article
• Language: English
• Published: New York Springer US 01-10-2023; Springer Nature B.V
• Subjects: Accounting/Auditing; Decomposition; Econometrics; Economics; Economics and Finance; Elasticity of demand; Expenditures; Generalized method of moments; Growth rate; Manufacturing; Microeconomics; Operations Research/Decision Theory; Price elasticity; Production functions; Productivity; Technology; Chinese Industrial Firms; Total Factor Productivity; Biased Technological change
• ISSN: 0895-562X; 1573-0441
• DOI: 10.1007/s11123-023-00683-2

Biased technological change is a crucial factor contributing to the growth of total factor productivity (TFP). In this paper, we jointly estimate the demand and production function based on the factor-augmenting CES function, calculate TFP and decomposes it into its biased and neutral components. Using data from Chinese industrial firm, we have three main findings. The cross-sector averages for price elasticity and elasticity of substitution are −8.92 and 0.37, respectively. Capital-augmenting and labor-augmenting technologies grow at a faster rate than the material-augmenting technology. The annual growth in aggregate TFP is 2.19% from 1998 to 2007, and biased technological change accounts for almost 30% of it.