Friday, 17 January 2014

Academic Paper: Sector-Level Productivity, Structural Change, and Rebalancing in China

The future of China depends to large extent to some degree of structural re balancing.  Export driven growth will be harder to achieve in a sluggish global economy.  This new IMF working paper is a province level study that considers productivity in the services sector.  Services have been growing rapidly - this will help GDP growth in the future.  Will the change happen quick enough?


IMF Working Paper No. 13/240
MALHAR NABAR, International Monetary Fund (IMF)

KAI YAN, Yale University

This paper studies structural changes underlying China's remarkable and unprecedented growth in recent years. While patterns of structural transformation across China's provinces are broadly in line with international experience, one important difference is in labor productivity differentials between services and the rest of the economy. Specifically, the gap between labor productivity in the rest of the economy and services has widened across China's provinces as they have moved from low to middle income, which is contrary to the trend observed in cross-country experience. Evidence from a panel of China's provinces suggests that credit and labor market frictions have inhibited labor productivity growth in services relatively more than in the rest of the economy. Reducing these frictions is essential for achieving the next stage of China's development, one in which the service sector will need to play a more prominent role as an engine of growth. The evidence also suggests that improving labor productivity in services will lift the consumption share of GDP, thereby advancing the needed rebalancing of domestic demand in China.

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