Growth, development, and structural change at the firmlevel: The example of the PR China

Understanding the microeconomic details of technological catchup rocesses offers great potential for informing both innovation economics and development policy. We study the economictransition of the PR China from an agrarian country to a hightech economy as one examplefor such a case. It is clear from past literature that rapidly rising productivity levels played acrucial role. However, the distribution of labor productivity in Chinese firms has not been comprehensively investigated and it remains an open question if this can be used to guide economicdevelopment. We analyze labor productivity and the dynamic change of labor productivity infirm level data for the years 1998-2013 from the Chinese Industrial Enterprise Database. Wedemonstrate that both variables are conveniently modeled as L Ì evy alpha stable distributions,provide parameter estimates and analyze dynamic changes to this distribution. We find thatthe productivity gains were not due to super star firms, but due to a systematic shift of theentire distribution with otherwise mostly unchanged characteristics. We also found an emergingright skew in the distribution of labor productivity change. While there are significant differencesbetween the 31 provinces and autonomous regions of the P.R. China, we also show that there aresystematic relations between micro level and province level variables. We conclude with someimplications of these findings for development policy.