Firm productivity and the variety of inputs and outputs: Evidence from Chinese trade data

• Main Authors: ONISHI, Ken, XU, Jianhuan, YANG, Guang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Production function estimation; TFP; trade; China; Asian Studies; Industrial Organization
• Online Access: https://ink.library.smu.edu.sg/soe_research/2516; https://ink.library.smu.edu.sg/context/soe_research/article/3515/viewcontent/Productionfunctionest.pdf
• Institution: Singapore Management University

This paper studies how the trade liberalization in China changes the firm productivity. We develop a framework to estimate revenue productivity (TFPR) and real productivity (TFPQ) with multi-product firms. We find that the aggregate TFPR increases 30\% from 2002-2007 and TFPQ increases 22\%, suggesting that the observed TFPR increase is mainly driven by real productivity change rather than the markup change. We further decompose the change of productivity into three channels: (1) access to foreign inputs; (2) technology upgrade; (3) resource re-allocation within the firm. We find the most significant channel is the last one, which explains half of the aggregate productivity increase. We also find that the SOEs and private firms significantly improve the TFPR. However, private firms TFPR increase mainly come from the increase of TFPQ, while only 65\% of the TFPR increase of SOEs can be attributed to change of TFPQ.