Accounting for the Role of Information and Communication Technology in China's Productivity Growth

Applying the Jorgensonian aggregate production possibility frontier (APPF) model to the China Industrial Productivity (CIP) data set constructed in the principle of KLEMS, we scrutinize the role of information and communication technology (ICT) industries in China's post-reform growth from 1981 to 2012. In the absence of a direct measure of ICT assets, we group Chinese industries into ICT-specific groups following the criteria used in the U.S. case (Jorgenson et al. 2005a), and apply the APPF industry origin of productivity framework, incorporating Domar weights for industry aggregation, to the grouped CIP industry data. This allows us to decompose China's productivity growth into the contribution of the ICT-specific groups and the factor reallocation effect across the groups. Our preliminary results show that Chinese ICT-producing and ICT-using manufacturing industries appear to be the most important driver of China's productivity growth over the entire period in question. While sharing 29% of China's 9.38% annual value added growth, these industries contributed 149% to China's 0.83% annual aggregate total factor productivity (TFP) growth. This, together with a strong gain from the labor reallocation effect across industries, has enabled the economy to compensate for its heavy productivity losses by non-ICT services and the economy-wide misallocation of capital resources.