An Empirical Study Of The Total Factor Productivity And Resource Misallocation Of China’s Manufacturing Industry

The growth mode of China’s manufacturing industry has long been extensive, which predominantly relies on resources’ input. In order to realize “the transformation and upgrading of the manufacturing sector”, which is emphasized on China’s “Twelfth Five-Year Plan”, manufacturing industry must been transferred to intensive development mode. Not only relying on the input of resources, but also correcting the distortion and increasing technology innovation. Compared with technology innovation, correcting distortions is a much more economic choice. Misallocation is one of the most valuable factors of productivity promotion at present. From this perspective, this article investigates the mutual effect between TFP and misallocation on the basis of theory and practice.In the micro perspective, Solow residual method is applied in measuring 678 enterprises’ TFP during the period of 2004 to 2012 on the base of financial data, then 28 sub-sectors’ weighted TFP is estimated, and the changes in productivity level by industry are achieved. Based on the above results, we decompose the misallocation into the framework, estimate the distortion effect and output gap. Then we develop a method to measure the efficiency loss caused by misallocation of resources by sub-industry. At last, we establish an empirical model of the mechanism that resources misallocation takes effect on TFP.The empirical results are as following, the growth mode of China’s manufacturing industry overall is extensive, the motivation from TFP is not apparently. We find the loss caused by price distortions has obstructed manufacturing sector, just take 2012 as an example, manufacturing will boost 7 percent of its total output only by correcting its distortions. It will be one of the magnificent paths to accelerate the manufacturing development of China in the following phase. Last but not least, in the way of measuring and analyzing the effect misallocation has on the TFP, we get the following results. On one hand, the research about TFP and misallocation is meaningful. On the other hand, both capital and labor allocation’s improvement can increase TFP, while correcting the distortions of capital is more efficient. We draw a conclusion that manufacturing sector should pay more attention to improve capital allocation so that the productivity is increased and intensive growth is maintained.