Total Factor Productivity in China's Manufacturing Sector in the Aftermath of the Global Financial Crisis

This paper improves the estimation of firm-level total factor productivity (TFP) by considering energy use and including small- and medium-sized enterprises using data from the Chinese National Tax Survey Database (2008-2011). It analyzes the production efficiency of Chinese manufacturing firms using the improved TFP data and finds that (i) the TFP data frequently used in previous studies overestimated firms' real production efficiency; (ii) the TFP of manufacturing firms decreased from 2008 to 2011 due to declines in both technical efficiency and allocation efficiency; (iii) the lower capacity utilization of production factors led to lower technical efficiency; and (iv) allocation efficiency decreased more in provinces and industries with higher shares of state-owned enterprises. The findings have policy implications for enhancing growth potential in the long run.