Technology Progress, Efficiency, and Scale of Economy in Post-reform China

This paper analyzes the productivity change of the thirty provinces in China’s post-reform economy. The productivity change is estimated from the stochastic frontier model, in which the maximum likelihood estimation is applied to an augmented logarithmic production function incorporated with a human capital variable. The empirical results show technical progress is the main contributor to productivity growth and the scale of economy became important in recent years, but technical efficiency has edged downwards in the sample period. We also found that the physical capital is the important factor for economic growth and human capital is inadequate even though it has a positive and significant effect on growth. The relevant policy implication for a sustainable post-reform China economy is the need to promote human capital accumulation and improvement in technical efficiency.