Numerous studies report the growth eﬀects from labor reallocation in China to be in the order of 1 to 2 percentage points per year, which would appear to be a signif-icant fraction of China’s per capita income growth. We show that the total factor productivity gains are an order of magnitude smaller, at only 0.25 percentage points per year. There are two reasons for this diﬀerence. First, the majority of stud-ies have used a decomposition method that eﬀectively assumes linear production functions. This results in values that are much larger than the more appropriate Denison-Kuznets method. Second we also allow for sectoral diﬀerences in human capital. We conclude that the gains from labor reallocation may have been a far less important source of China’s growth than is conventionally thought.
|Name||Economics Discussion Papers|