Selin Özyurt

Productivity, scale effect and technological catch-up in Chinese regions

Purpose - The purpose of this study is to investigate the driving forces of Chinas recent rapid economic growth and its sustainability in the future. Design/methodology/approach - A stochastic production frontier approach is employed in order to investigate regional productivity performances of Chinese provinces over the period 1994-2006. Findings - Despite the general concern of widening regional inequalities in China, the findings show a striking trend of convergence among Chinese provinces over the last decade. The empirical results also reveal a significant contribution of foreign direct investment and foreign trade to economic growth. From a macroeconomic point of view, the strong trend of economic convergence among regions could give evidence on the sustainability of rapid economic growth in China in the near future. In addition, the empirical findings show that Chinese provinces tend to compensate negative scale effects by rising productive efficiency through technological progress. Research limitations/implications - Further investigation of the non-neutrality of technological component can yield a better understanding of the underlying convergence mechanism. Practical implications - That is to say, policy makers should pursue their initiative to promote backward regions in western and inland regions and to encourage their economic integration through the free movement of production factors across regional borders. Further investment in physical and human capital construction in backward provinces are also needed to stimulate the catch-up process. Originality/value - The main contribution of this methodology is the ability to introduce various returns to scale production technology and to decompose regional productivity scores over time into two major components, namely scale and pure technical efficiencies.

Currency Undervaluation and Economic Rebalancing towards Services: Is China an Exception?

The present study investigates the main determinants of the employment share of the service sector using a panel of 66 countries over the period 1983–2007. Based on alternative measures of currency misalignment, the study extends the literature by investigating the impact of an undervalued currency on services. The empirical findings show that together with productivity and income per capita, currency undervaluation significantly determines the total employment share of services. Another key finding is that conventional crosscountry determinants and the exchange rate undervaluation can only partially explain the underdevelopment of services activity in China and in other South-East Asian countries. In these countries, policies that aim at rebalancing the economy towards services should include elements to reform the domestic financial market, and the social security and healthcare systems.

The spatial dimension of trade- and FDI-driven productivity growth in Chinese provinces: A global cointegration approach

This paper analyses the major determinants of long- and short-run labour productivity evolution for Chinese provinces between 1978 and 2010. The role played by openness to trade and foreign direct investment (FDI) constitutes the main focus of this analysis. From a methodological perspective, our main contribution is the inclusion of spatial effects into a dynamic error correction modelling framework. The results show that, in addition to domestic factors such as investment intensity and infrastructure use, trade openness and inward FDI also exert a direct impact on labour productivity. Furthermore, the geographical environment has a strong indirect influence on productivity: The more a region is surrounded by high-productive regions with good infrastructure and linkages to the world economy, the higher are its productivity level and growth rate. The magnitude of these impacts varies by spatial regime (coastal, interior provinces) and time period in focus. Especially in the recent past, trade and FDI activity appear to be increasingly important drivers of regional productivity evolution, both for coastal and interior regions. These findings have important policy implications: In order to fully exploit the benefits from such spillovers, coordinated industrial policies which foster regional complementarities and support the free movement of production factors across regional borders are crucial.