Productivity Growth of the Non-Tradable Sectors in China

Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 08/2012

Review of Development Economics, Volume 18, Issue 4, pages 655–666, November 2014. The web appendix for the journal version of this paper can be accessed by the following link: https://uat.aof.org.hk/docs/default-source/hkimr/working-papers/online-appendix-hkimr.pdf

30 Pages Posted: 23 Mar 2012 Last revised: 25 Jul 2022

Date Written: March 19, 2012

Abstract

This working paper was written by Dong He (Hong Kong Monetary Authority), Wenlang Zhang (Hong Kong Monetary Authority), Gaofeng Han (Hong Kong Monetary Authority) and Tommy Wu (Hong Kong Monetary Authority).

Little is known about the total factor productivity of the non-tradable sectors in China. In this paper we estimate productivity growth of the non-tradable sectors by studying the relative price movements of the non-tradable sectors vis-à-vis the tradable sectors, i.e. changes in the internal real exchange rate. We find that prices of the non-tradable sectors have risen significantly faster than those of the tradable sectors, and China’s internal real exchange rate has appreciated at a faster pace than the renminbi real effective exchange rate. We also find the non-tradable sectors have seen much lower productivity growth than the tradable sectors, and such productivity differentials are large when compared to other economies. We argue that if productivity growth in the non-tradable sectors remains slow, China will likely see more difficulty in rebalancing its growth pattern and higher inflationary pressures in the medium term. As such, it is important for the authorities to take policy actions to raise productivity growth in the non-tradable sectors.

Keywords: Tradable and Non-Tradable Sectors, Internal Real Exchange Rate, Total Factor Productivity

JEL Classification: E31, F31, F43

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Productivity Growth of the Non-Tradable Sectors in China (March 19, 2012). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 08/2012, Review of Development Economics, Volume 18, Issue 4, pages 655–666, November 2014. The web appendix for the journal version of this paper can be accessed by the following link: https://uat.aof.org.hk/docs/default-source/hkimr/working-papers/online-appendix-hkimr.pdf, Available at SSRN: https://ssrn.com/abstract=2025802 or http://dx.doi.org/10.2139/ssrn.2025802

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