Levels of structural change: An analysis of China's development push 1998-2014

Heinrich, Torsten and Yang, Jangho and Dai, Shuanping (2020): Levels of structural change: An analysis of China's development push 1998-2014.

Abstract

We investigate structural change in the PR China during a period of particularly rapid growth 1998-2014. For this, we utilize sectoral data from the World Input-Output Database and firm-level data from the Chinese Industrial Enterprise Database. Starting with correlation laws known from the literature (Fabricant's laws), we investigate which empirical regularities hold at the sectoral level and show that many of these correlations cannot be recovered at the firm level. For a more detailed analysis, we propose a multi-level framework, which is validated with empirically. For this, we perform a robust regression, since various input variables at the firm-level as well as the residuals of exploratory OLS regressions are found to be heavy-tailed. We conclude that Fabricant's laws and other regularities are primarily characteristics of the sectoral level which rely on aspects like infrastructure, technology level, innovation capabilities, and the knowledge base of the relevant labor force. We illustrate our analysis by showing the development of some of the larger sectors in detail and offer some policy implications in the context of development economics, evolutionary economics, and industrial organization.

• Item Type: MPRA Paper
• Language: English
• Keywords: Structural change; Fabricant's laws; China; labor productivity; economic growth; firm growth
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O53 - Asia including Middle East

References

Axtell RL (2001) Zipf distribution of U.S. firm sizes. Science 293(5536):1818–1820

Baumol WJ (1967) Macroeconomics of unbalanced growth: the anatomy of urban crisis. The American economic review 57(3):415–426

Beaudry C, Schiffauerova A (2009) Who’s right, marshall or jacobs? the localization versus urbanization debate. Research policy 38(2):318–337

Bottazzi G, Secchi A (2006) Explaining the distribution of firm growth rates. The RAND Journal of Economics 37(2):235–256

Bottazzi G, Secchi A (2011) A new class of asymmetric exponential power densities with applications to economics and finance. Industrial and corporate change 20(4):991–1030

Bottazzi G, Secchi A, Tamagni F (2008) Productivity, profitability and financial performance. Industrial and Corporate Change 17(4):711–751

Bottazzi G, Li L, Secchi A (2019) Aggregate fluctuations and the distribution of firm growth rates. Industrial and Corporate Change 28(3):635–656

Brandt L, Rawski TG (2008) China’s great economic transformation. Cambridge University Press

Brandt L, Van Biesebroeck J, Zhang Y (2012) Creative accounting or creative destruction? firm-level produc- tivity growth in chinese manufacturing. Journal of Development Economics 97(2):339–351

Brandt L, Tombe T, Zhu X (2013) Factor market distortions across time, space and sectors in china. Review of Economic Dynamics 16(1):39–58

Brandt L, Van Biesebroeck J, Zhang Y (2014) Challenges of working with the chinese nbs firm-level data. China Economic Review 30:339–352

Brondino G (2019) Productivity growth and structural change in china (1995–2009): A subsystems analysis. Structural Change and Economic Dynamics 49:183–191

Chen S, Jefferson GH, Zhang J (2011) Structural change, productivity growth and industrial transformation in china. China Economic Review 22(1):133–150

Chenery HB, Syrquin M (1975) Patterns of development, 1950-1970, vol 75. Oxford University Press London

Clapham JH (1922) Of empty economic boxes. The Economic Journal 32(127):305–314

Clark C (1967) The conditions of economic progress. London: Macmillan

Coad A (2007) Firm growth: A survey. HALSHS Worling paper: https://halshs.archives-ouvertes.fr/halshs- 00155762

Das S (1995) Size, age and firm growth in an infant industry: The computer hardware industry in india. International Journal of Industrial Organization 13(1):111 – 126, DOI 10.1016/0167-7187(94)00453-9

Dekle R, Vandenbroucke G (2012) A quantitative analysis of china’s structural transformation. Journal of Economic Dynamics and Control 36(1):119–135

Ding S, Guariglia A, Harris R (2016) The determinants of productivity in chinese large and medium-sized industrial firms, 1998–2007. Journal of Productivity Analysis 45(2):131–155

Dong Xy, Xu LC (2009) Labor restructuring in china: Toward a functioning labor market. Journal of Comparative Economics 37(2):287–305

Duschl M, Peng SS (2015) The patterns of chinese firm growth: a conditional estimation approach of the asym- metric exponential power density. Industrial and Corporate Change DOI 10.1093/icc/dtv006, forthcoming

Fabricant S (1942) Employment in Manufacturing, 1899-1939. Publications of the National Bureau of Economic Research, Number 41, American Book - Stratford Press, New York

Fagerberg J (2000) Technological progress, structural change and productivity growth: a comparative study. Structural change and economic dynamics 11(4):393–411

Fan S, Zhang X, Robinson S (2003) Structural change and economic growth in china. Review of Development Economics 7(3):360–377

Fisher AG (1935) Clash of progress and security. Macmillan and Co. Limited, London

Fisher AGB (1939) Production, primary, secondary and tertiary. Economic Record 15(1):24–38, DOI 10.1111/ j.1475-4932.1939.tb01015.x

Frank SA (2009) The common patterns of nature. Journal of Evolutionary Biology 22(8):1563–1585, DOI 10.1111/j.1420-9101.2009.01775.x

Freeman C, Perez C (1988) Structural crisis of adjustment, business cycles and investment behaviour. In: Dosi G, Freeman C, Nelson R, Silverberg G, Soete L (eds) Technological Change and Economic Theory, Pinter Publishers, London, N.Y., pp 38–66

Fu FC, Vijverberg CPC, Chen YS (2008) Productivity and efficiency of state-owned enterprises in china. Journal of Productivity Analysis 29(3):249–259

Goddard J, Molyneux P, Wilson JO (2004) Dynamics of growth and profitability in banking. Journal of money, credit and banking pp 1069–1090

Heinrich T (2017) The narrow and broad approaches to evolutionary modeling in economics. Journal of Economic Issues 51(2):383–391

Heinrich T, Dai S (2016) Diversity of firm sizes, complexity, and industry structure in the Chinese economy. Structural Change and Economic Dynamics 37:90 – 106

Heinrich T, Winkler J (2020) Package ’finity’: Test for Finiteness of Moments in a Distribution. R package version 0.4.1, https://cran.r-project.org/web/packages/finity/finity.pdf

Heinrich T, Yang J, Dai S (2019) Growth, development, and structural change at the firm level: The example of the PR China. Unpublished manuscript

Hidalgo CA, Klinger B, Barabási AL, Hausmann R (2007) The product space conditions the development of nations. Science 317(5837):482–487

Holz CA (2006) Measuring chinese productivity growth, 1952-2005. DOI 10.2139/ssrn.928568, sSRN Working Paper 928568

Hsieh CT, Klenow PJ (2009) Misallocation and manufacturing TFP in China and India. The Quarterly Journal of Economics 124(4):1403–1448

Hu AGZ, Jefferson GH (2008) Science and technology in china. In: China’s great economic transformation, Cambridge University Press, Cambridge, UK, pp 91–135

Kwaśnicki W (1998) Skewed distributions of firm sizes—an evolutionary perspective. Structural Change and Economic Dynamics 9(1):135 – 158, DOI http://dx.doi.org/10.1016/S0954-349X(97)00040-4

Maddison A (1983) A comparison of levels of GDP per capita in developed and developing countries, 1700– 1980. The Journal of Economic History 43(1):27–41

Mealy P, Farmer JD, Teytelboym A (2019) Interpreting economic complexity. Science advances 5(1):eaau1705

Metcalfe JS, Foster J, Ramlogan R (2006) Adaptive economic growth. Cambridge Journal of Economics 30(1):7–32

Montobbio F (2002) An evolutionary model of industrial growth and structural change. Structural Change and Economic Dynamics 13(4):387–414

Mulder P, De Groot HLF, Hofkes MW (2001) Economic growth and technological change: A comparison of insights from a neo-classical and an evolutionary perspective. Technological Forecasting and Social Change 68(2):151 – 171, DOI DOI:10.1016/S0040-1625(00)00078-0

Nabar MM, Yan MK (2013) Sector-level productivity, structural change, and rebalancing in china

Naughton B (2008) A political economy of china’s economic transition. In: China’s great economic transfor- mation, Cambridge University Press, Cambridge, UK, pp 91–135

Nelson RR, Winter SG (1975) Growth theory from an evolutionary perspective: The differential productivity puzzle. The American Economic Review pp 338–344

Nelson RR, Winter SG (1982) An Evolutionary Theory of Economic Change. Harvard University Press, Cambridge

Ngai LR, Pissarides CA (2007) Structural change in a multisector model of growth. American economic review 97(1):429–443

Nolan JP (1998) Parameterizations and modes of stable distributions. Statistics & Probability Letters 38(2):187 – 195

Nolan JP (2019) Stable distributions - models for heavy tailed data. boston. Unfinished manuscript URL academic2.american.edu/~jpnolan.

Nooteboom B (1994) Innovation and diffusion in small firms: theory and evidence. Small business economics 6(5):327–347

Nowak MA (2006) Evolutionary dynamics: exploring the equations of life. Belknap Press of Harvard Univ. Press, Cambridge, Mass.

Osorio F (2019) Package ’heavy’: Robust Estimation Using Heavy-Tailed Distributions. R package version 0.38.196, https://cran.r-project.org/web/packages/heavy/heavy.pdf

Pasinetti LL (1988) Growing subsystems, vertically hyperintegrated sectors and the labour theory of value. Cambridge Journal of Economics 12(1):125–134

Pugsley BW, Sedlacek P, Sterk V (2019) The nature of firm growth. DOI 10.2139/ssrn.3086640, sSRN Working Paper 3086640

Rathie PN, de SM Ozelim LC, Otiniano CEG (2016) Exact distribution of the product and the quotient of two stable Lévy random variables. Communications in Nonlinear Science and Numerical Simulation 36:204–218

Rawski TG (1979) Economic growth and employment in china. World Development 7(8):767 – 782, DOI https://doi.org/10.1016/0305-750X(79)90036-6

Robertson DH (1915) A study of industrial fluctuation: an enquiry into the character and causes of the so-called cyclical movements of trade. PS King, London

Rostow WW (1960) The stages of growth: A non-communist manifesto. Cambridge University Press Cambridge

Saviotti PP, Pyka A (2013) From necessities to imaginary worlds: Structural change, product quality and economic development. Technological Forecasting and Social Change 80(8):1499 – 1512, DOI http://dx.doi. org/10.1016/j.techfore.2013.05.002

Schumpeter JA (1943 [2003]) Socialism, capitalism and democracy. Routledge, London and New York

Scott MF (1991) A new view of economic growth. Oxford University Press, Oxford, UK

Shen JH, Liu XJ, Zhang J (2019) Toward a unified theory of economic reform. Structural Change and Economic Dynamics 51:318–333

Silverberg G, Lehnert D (1993) Long waves and ‘evolutionary chaos’ in a simple Schumpeterian model of embodied technical change. Structural Change and Economic Dynamics 4(1):9 – 37, DOI DOI:10.1016/ 0954-349X(93)90003-3

Song Z, Storesletten K, Zilibotti F (2011) Growing like China. American Economic Review 101(1):196–233 Syrquin M (1988) Patterns of structural change. Handbook of development economics 1:203–273

Timmer M, de Vries GJ, De Vries K (2015a) Patterns of structural change in developing countries. In: Routledge handbook of industry and development, Routledge, pp 79–97

Timmer MP, Dietzenbacher E, Los B, Stehrer R, De Vries GJ (2015b) An illustrated user guide to the world input– output database: the case of global automotive production. Review of International Economics 23(3):575–605 Trapani L (2016) Testing for (in)finite moments. Journal of Econometrics 191(1):57 – 68

Wang L, Szirmai A (2008) Productivity growth and structural change in chinese manufacturing, 1980–2002. Industrial and Corporate Change 17(4):841–874

Yang J, Heinrich T, Winkler J, Lafond F, Koutroumpis P, Farmer JD (2019) Measuring productivity dispersion: a parametric approach using the lévy alpha-stable distribution. DOI 10.2139/ssrn.3468301, iNET Oxford working paper 2019-17, available online: https://arxiv.org/abs/1910.05219, arXiv:1910.05219

Yang L, Lahr ML (2010) Sources of chinese labor productivity growth: A structural decomposition analysis, 1987–2005. China Economic Review 21(4):557–570

Yu X, Dosi G, Lei J, Nuvolari A (2015) Institutional change and productivity growth in China’s manufactur- ing: the microeconomics of knowledge accumulation and ”creative restructuring”. Industrial and Corporate Change 24(3):565–602