Narrow Results

This study calculates China’s provincial total factor productivity (TFP) and decomposition indexes. Then, a system of indicators is constructed to measure digitization, and an empirical analysis is conducted. The results show that (1) digitization can significantly improve TFP, especially technical efficiency, largely due to the increase in factor allocation efficiency and the quality of technological innovation resulting from digitization, a finding that remains valid even after a series of robustness tests. (2) The effect of digitization on the improvement of TFP is more pronounced in the central and western regions of China than in the east and more pronounced when economic development is in the service stage. The existence of a digital divide can diminish the positive effects of digitization. The regression results by industry show that digitization has a more significant positive impact on TFP in the secondary and tertiary industries than in the primary industries. (3) Further analysis shows that the process of digitization in raising TFP is nonlinear and that the positive effect of digitization on TFP is stronger when the level of industrial structure crosses the threshold. The findings of this paper bear some beneficial policy implications.

It is increasingly accepted that the gross domestic product (GDP) growth rate of the People's Republic of China (PRC) is slowing down, but the reasons for the slowdown are not yet well understood. Part of the reason is that growth in all countries that reach high-income status slows down when they reach a global research income level that is still far below the level of the highest income countries. In the PRC, on the supply side, this is happening because total factor productivity (TFP) is slowing down whereas, because of slowing labor force growth, it would have to increase in order to maintain near double-digit GDP growth. On the demand side, a low share of household income in GDP has required the PRC to maintain an unusually high rate of investment in transport infrastructure and housing, but the rapid growth in both of these areas is coming to an end. Environmental investment could take up the slack and keep aggregate demand at a level that would fully employ resources. Finally, the PRC has reached the point where the manufacturing share of GDP has peaked and will begin to decline as the economy becomes increasingly service based, but services seldom grow at the double-digit rates that manufacturing is sometimes capable of.