Structural Change, Performance and Demand on Resources
Edited by Ligang Song and Haimin Liu
Chapter 4: China’s iron and steel industry performance: total factor productivity and its determinants
Yu Sheng and Ligang Song
The rapid expansion of China’s iron and steel industry (hereafter ‘the industry’) since early in the twenty-first century has been remarkable in terms of both speed and scale. Yet there is an issue regarding the ‘quality’ of the industry’s expansion – was the rapid growth driven primarily by increases in inputs or by gains in productivity? There is no consensus as to which factors have been more important for driving the current wave of the industrial expansion. However, a more sustainable and healthy development of the industry should be based on the continuation of firm-level productivity growth – a representation of both technological progress and efficiency improvement. Examining the change of firm-level productivity and its determinants over the past decade therefore becomes an important empirical question. There have been many attempts made to quantify the productivity of China’s iron and steel firms and its determinants by using microeconomic (firm-level) data. Jefferson (1990) was the first to estimate the total factor productivity (TFP) of the industry by using a log–linear function with cross-sectional data from 120 large and medium-sized enterprises (hereafter LMEs) in 1986. Kalirajan and Chao (1993) and Wu (1996) adopted the stochastic frontier analysis to distinguish between firms’ technical efficiency and their technological progress using cross-sectional and panel data of LMEs before 2000, respectively.
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