Impacts Of The Dual Margin On Productivity:Evidence From China Industry

Since the introduction of the reform and opening policy more than thirty years ago, great achievements in the export trade have been achieved in China, while the facts of volatile export situation resulting from external shocks, the steady deterioration of trade conditions, and the growing trade frictions that behind the high-speed developing of exports are still non-ignorable. Hence, problems like how to transfer the growth model from extensive to intensive, whether keeping the specialized production based on division of international value chains or applying the new strategy of diversifying export, have always been the very concern of the academic circles worldwide. However, the heterogeneous firm theory, which decomposes the export growth problem into the extensive margin of the diversification of export and the intensive margin of the specialization of export, has provided a new perspective for the scholars to do deep research concerning export growth.Based on the above background, by using the data in 33 different industry sectors from 1996 to 2013, the dynamic evolution of dual margin of industry in China is measured, calculated and analyzed in this paper. On the other hand, the binary transmission mechanism of the marginal productivity is derived under the framework of semi-endogenous growth model, based on which the effect of dual margin may have on TFP is also studied on the overall sample level as well as the factor intensity-based sub-sectors sample level.Firstly, by using the HS92 six-figure trade data in the CEPII BACI database and applying Amurgo-Pacheco’s and Pierola’s measure methods, it is found out that both the extensive margin and the intensive margin of the trade volume in China kept increasing during 1996 and 2013, while the extensive margin had a higher growth rate and an annually increasing proportion in the export volume after measurement and calculation. However, the intensive margin was still the main power to drive the export growth, and the negative effect that external shocks had on the extensive margin was much greater than that on the intensive margin. Judging from the dual margin of different types of industries, the extensive margin of labor intensive industry had a smallest growth rate, and it had a lowest contribution to the export growth. As a comparison, the average extensive margin of capital intensive industry made up more than 10% of the total export volume, and it had the ability to fight against external shocks, for example, its extensive margin kept a growing trend even when facing the financial crisis in 2008.Secondly, generalized least square method and generalized method of moments (GMM) estimator are utilized to inspective the effect that the dual margin of all 33 industries may have on total factor productivity (TFP). The results have shown that both the extensive margin and the intensive margin had significant positive correlations with TFP, and the intensive margin had a greater contribution to the productivity growth than that the extensive margin had. However, while there are significant positive correlations between investment in research and development, foreign direct investment, capital per worker and productivity, human capital inhibited the growth of TFP significantly.To further analyze the effect of the dual margin,33 industries are classified into four categories, including labor intensive section, resource intensive section, capital intensive section and capital-skill intensive section in this paper. By using classification regression, it is found out that the extensive margin of all types of industries promoted the growth of TFP significantly, while the intensive margin of labor intensive section and resource intensive section had little effect on the growth of TFP. Different from other industries, foreign direct investment had significant inhibitory effect on labor intensive section. When applying classification regression on the capital intensive section and capital-skill intensive section, it is also found that human capital in these two sections had a positive correlation with productivity, while in other types of industries human capital had a negative correlation with productivity.Lastly, based on the empirical study, relevant advices and potential policies are proposed to optimal and upgrade the export structures in China as well as to improve TFP in this paper.