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Chinese Rural Industrial Productivity and Urban Spillovers

  • Yusheng Peng
  • Lynne G. Zucker
  • Michael R. Darby

Chinese rural industry has grown three times faster than national GDP, surpassing agriculture in size in 1987, and now nearing half of the total Chinese economy. We use a rich, new county-level data set to explore this dramatic growth. We find that a Cobb-Douglas production function explains over 80 percent of across-county variation in 1991 rural industrial output per capita, with little role for idiosyncratic regional or provincial fixed effects. There is a very large effect on productivity from being near cities (30 to 35 percent higher productivity for a county one standard deviation above average in nearness to population centers) due to embodied technology transfer from urban residents. We find strong support for the hypothesis that saving from past agricultural income has provided start-up capital for rural enterprises. However, higher land-labor ratios lead to greater allocation of labor and capital to agriculture instead of industry, although induced inflow of migrants reduces the effect on industrial labor. Nearness to cities and more education increase capital and labor in rural industry. Substantial explanatory power (one third or more) for industrial labor and capital is attributed to provincial fixed effects, possibly reflecting local commercial and migration policies.

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File URL: http://www.nber.org/papers/w6202.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6202.

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Date of creation: Sep 1997
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Handle: RePEc:nbr:nberwo:6202
Note: PR
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  1. Jeffrey D. Sachs & Wing Thye Woo, 1997. "Understanding China's Economic Performance," NBER Working Papers 5935, National Bureau of Economic Research, Inc.
  2. Michael R. Darby & Lynne G. Zucker, 1996. "Star Scientists, Institutions, and the Entry of Japanese Biotechnology Enterprises," NBER Working Papers 5795, National Bureau of Economic Research, Inc.
  3. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 65-86, January.
  4. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
  5. Knight, J. & Song, L., 1990. "The Spatial Contribution To Income Inequality In Rural China," Economics Series Working Papers 99106, University of Oxford, Department of Economics.
  6. Zucker, Lynne G & Darby, Michael R & Brewer, Marilynn B, 1998. "Intellectual Human Capital and the Birth of U.S. Biotechnology Enterprises," American Economic Review, American Economic Association, vol. 88(1), pages 290-306, March.
  7. Sokoloff, Kenneth L. & Tchakerian, Viken, 1997. "Manufacturing Where Agriculture Predominates: Evidence from the South and Midwest in 1860," Explorations in Economic History, Elsevier, vol. 34(3), pages 243-264, July.
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