Final Report Summary - CHINA (Trade, Productivity, and Firm Capabilities in China's Manufacturing Sector) Our project had two overarching objectives. First, we constructed a database on Chinese firms’ operations (inputs and outputs) and international trade involvement. Second, we used this database to learn about the dynamics and origin of productivity growth by Chinese firms in the period 1995-2013.The construction of the database consisted of merging the Chinese annual survey of above-scale industrial enterprises with (approximately) 4-yearly censuses, and with the annual record of all trade-transactions for China. Most importantly, we supplemented this database with ancillary pieces of information necessary to use it in economic research, such as deflators and concordances, programs to establish annual firm-level linkages and calculate the real capital stock, etc.The resulting database is used not only by our own research group, but the supplementary data files and programs are made freely available for all researches with access to the NBS source files (whom by now number in the hundreds, if not thousands, of economic researchers). As a result, the research community interested in studying Chinese productivity growth dynamics has access to a reliable set of tools that are continuously being improved using input from researchers from across the world.In one of our first applications using the database we showed that productivity growth in the Chinese manufacturing sector between 1998 and 2007 was faster than almost any recorded national performance. This conclusion stands in contrast with the previously accepted wisdom that accumulation of resources was a more important channel of growth than productivity, even in fast-growing economies. Notably, the earlier conclusion relied on aggregate information while we exploited detailed micro-level information on individual firms or even products.In a second study, we showed that China’s lowering of tariffs leading up to and following its entry into the WTO was an important catalyst for this productivity acceleration. Contrary to previous studies, we find not only positive productivity effects from lower tariffs on inputs and intermediates, but also productivity boosting effects from lower tariffs on output. This latter channel raised competition on the Chinese market and forced domestic firms to adjust. The effect on productivity appears in spite of a reduction in the price-cost margin, indicating that efficiency gains must be part of the underlying story. The evolution of state-owned firms in particular, as well as the rising productivity of entrants in liberalized sectors, corroborates the channel we propose. They suggest a link from greater competition, to lower price-cost margins, and eventually to pressure on firms to increase their operational efficiency.
