A Global View of Productivity Growth in China

There is a lot written about the "impact of China" on pretty much everything. What about productivity in the rest of the world from China's rise? Gains from trade means productivity spillovers should benefit us all but do they?

A new paper by Chang-Tai Hsieh and Ralph Ossa (NBER) provide some numbers.

They find that the average real income of the rest of the world INCREASED by a cumulative 0.48% from 1992-2007 due to China's productivity growth? This represents 2.2% of total income gains to the world.

What does this really mean?

Where is the bad news?

A Global View of Productivity Growth in China

Chang-Tai Hsieh
University of Chicago - Booth School of Business

Ralph Ossa
affiliation not provided to SSRN


February 2011

NBER Working Paper No. w16778

Abstract:
We revisit a classic question in international economics: how does a country's productivity growth affect worldwide real incomes through international trade? We first identify the channels through which productivity shocks transmit in a model featuring inter-industry trade as in Ricardo (1817), intra-industry trade as in Krugman (1980), and firm heterogeneity as in Melitz (2003). We then estimate China's productivity growth at the industry level and use our model to quantify what would have happened to real incomes throughout the world if nothing but China's productivity had changed. We find that average real income in the rest of the world increased by a cumulative 0.48% from 1992-2007 due to China's productivity growth. This represents 2.2% of the total income gains to the world.

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