Study On The Determinants Of Productivity Of Service Industry In China

Productivity is the source of economic growth, and the problems associated with productivity are long-term problems that have attracted many economists. As the contribution of the service industry to GDP gradually increases in China, the government would give high priority to develop service industry in the next period. Besides, developing service industry would help industrial structural transformation and expand domestic demand. However, the Baumol-Fuchs hypothesis argues that the productivity of service industry is lagged behind manufacturing. In Baumol’s model, the lack of growth in productivity in service industry would lead to the lack of growth of the whole economy. Although this hypothesis has been challenged, the phenomena of lagging productivity and the underdevelopment of service industry in China are actually existent. What are the origins of such phenomena? Which factors hinder the growth of the service industry? How can we promote the development of the service industry? These questions capture the topics of this dissertation.Services differ from goods in a number of ways. Services are intangible and insubstantial, so they are non-transportable and non-storable. Services are co-produced with the consumers and consumed during the same period of time. Services are regarded as heterogeneous, since they are typically produced for each consumer and one-time generated. In order to highlight these characteristics of services this dissertation uses four key dimensions of development to describe the determinant of productivity of service industry in China. The analysis is provided at four scales---enterprise-wide, regional, national, and international. Four dimensions of service industry development are innovation, agglomeration, regulation and internalization. This dissertation is written based on the relationship between four dimensions and productivity in service industry as follows:Chapter3uses the macro data from statistical yearbook and the micro data from listed companies, then describes the production efficiency of service industry by sector, region, period, and ownership. This chapter aims to give a picture of the productivity of service industry in china.Chapter4examines the relationship between innovation and productivity. Special features that services innovate differently from manufacturing is emphasized, and several indicators are used to proxy service innovation. The main findings of this chapter are:unlike manufacturing innovation, customers and competitors are the main drivers of service innovation. Under most circumstances, innovation has a positive impact on service firms, especially on knowledge-intensive sectors. There is no significant relationship between innovation and non-knowledge-intensive sectors.Chapter5distinguishes the differences between service agglomeration and manufacturing agglomeration. This chapter rethinks the agglomeration of service industry using a demand-based perspective, i.e., market demand boosts the agglomeration, especially in service industry, and the productivity of service industry increases with the level of agglomeration. Empirical support is found using China’s provincial data from2004-2009, and it also indicates a crude economic growth pattern and the existence of "semi-urbanization" which might be fail to generate effective demand that could drive service agglomeration.Chapter6finds the evidence of tight regulation in service industry. In this chapter a model which shows regulation affects firm productivity is build. Regulation policy would discourage competition. It protects the incumbent monopoly firms and blocks the entry of efficient firms. In the absence of entry of efficient firms, low-efficiency firms could survive without investing in innovation, thus reduces the efficiency of the entire market. Empirical results show that relaxing entry of private or foreign firms does not significantly affect productivity growth. However, decreasing monopoly power of SOEs has a significant positive effect on productivity growth. These facts indicate that regulation in service industry might be imbalanced between sectors.Chapter7considers two points:regional integration and internationalization of service industry. Service industry is more localized than manufacturing, hence regional integration might have positive impact on productivity of service industry. This chapter examines these relationships via trade liberalization and supply chain globalization. Empirical results show that more globalized service firms are more productive. Globalization degree of competitors and the degree of regional integration of supplier are positively associated with firm productivity. These results demonstrate regional integration and globalization is equally important for service firms in China.Chapter8concludes and provides policy suggestions.In sum, this dissertation contributes to the current literature on the service industry in two areas:1) it builds a service-oriented framework, highlighting the essential features of service.2) it employs micro-level data, compensating the potential measurement problems caused by statistical accounting.