Title: CREATIVE ACCOUNTING OR CREATIVE DESTRUCTION? FIRM-LEVEL PRODUCTIVITY GROWTH IN CHINESE MANUFACTURING


Author: Loren Brandt, Johannes Van Biesebroeck, Yifan Zhang

Working Paper 15152
http://www.nber.org/papers/w15152
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
July 2009


We present the first comprehensive set of firm-level total factor productivity estimates for China’s
manufacturing sector that spans her entry into WTO. We find that productivity growth is among the
highest compared to other countries. For our preferred estimate, the weighted average annual productivity
growth for incumbents is 2.7% for a gross output production function and 7.7% for a value added production
function over the period 1998-2006. Of the various sensitivity checks we carry out, controlling for
the increase in labor quality and labor hours, as proxied by the rising real wage, has the largest (downward)
effect on the productivity estimates. We further document that new entrants are a particularly dynamic
force and that firms experience large productivity declines before exiting from the sample. Overall,
net entry contributes roughly half to total TFP growth. Aggregate productivity growth, however, is
tempered by a much lower effect of reallocation of inputs towards higher productivity firms, compared
to the U.S. benchmark.