A Dual Accounting for the Rise of Service Sectors in China (Job Market Paper, with Guangyu Pei and Zheng (Micheal) Song)

Abstract: China has been experiencing a rapid expansion of the service sector since the mid-2000s. This paper uses a dual accounting approach to investigate the underlying forces for the structural change across sectors and regions. We first use development accounting to back out region-sector TFP growth from regional and sectoral employment shares. We then use "the direct method" that aggregates Hsieh-Klenow statistics to the region-sector level and apply it to a large-scale firm data set. Development accounting and the direct method will deliver the same estimates if the sectoral demand structure is correctly specified for development accounting. We find three main results. First, both development accounting and the direct method reveal fast manufacturing and producer services TFP growth. The sectoral TFP growth estimated by the two methods is also highly correlated, in line with the internal consistency of the dual accounting approach. Second, we decompose sectoral TFP growth by the direct method into efficient sectoral TFP growth, changes in sectoral wedges, and changes in within-industry misallocation. We find the manufacturing and producer services TFP growth to be primarily driven by efficient TFP growth but substantially slowed by the worsening of misallocation. Third, we infer misallocation from the dual accounting approach, which turns out to be highly correlated with the directly measured misallocation. The strong correlation not only reinforces the deteriorating misallocation by the direct method but also provides another validity check for our dual accounting approach. Holding within-industry misallocation constant would increase China's service employment share by 26 percentage points.

A Forensic Examination of China's National Accounts (with Wei Chen, Chang-Tai Hsieh, and Zheng Song)

Brookings Papers on Economic Activity, 2019, Spring, 77-127.

Abstract: China's national accounts are based on data collected by local governments. However, because local governments are rewarded for meeting growth and investment targets, they have an incentive to skew local statistics. China's National Bureau of Statistics (NBS) adjusts the data provided by local governments to calculate GDP at the national level. The adjustments made by the NBS have averaged about 5 percent of GDP since the mid-2000s. On the production side, the discrepancy between local and aggregate GDP is entirely driven by the gap between local and national estimates of industrial output. On the expenditure side, the gap is in investment. Local statistics increasingly misrepresent the true numbers after 2008, but there was no corresponding change in the adjustment made by the NBS. Using publicly available data, we provide revised estimates of local and national GDP by reestimating the output of firms in the industrial, construction, and wholesale and retail trade sectors, using data on value-added taxes. We also use several local economic indicators that are less likely to be manipulated by local governments to estimate local and aggregate GDP. These estimates also suggest that the adjustments by the NBS have been insufficient since 2008. Relative to the official numbers, we estimate that GDP growth from 2010 to 2016 was about 1.8 percentage points lower and that the investment and savings rate in 2016 was about 7 percentage points lower.

行政审批改革与企业进入 Administrative Approval Reform and Firm Entry (in Chinese, with Qingmiao Bi, Xianxiang Xu and Shujuan Li)

Economic Research Journal 《经济研究》, 2018, 53(2): 140-155.

Abstract: In this paper, we examine the effect of administrative approval reform on the firm entry rate in China. On the one hand, we prove that the entry rate over a threshold of firm size can be used to identify the influence of reform under certain conditions. Therefore, we can calculate the entry rate with the annual survey of industrial firms (ASIF) in China. On the other hand, we proxy the reform by the foundation of Administrative Approval Centers (AAC). We collect the data of the AAC in all 333 prefectures and 2,852 counties in China. Our regression results show that the foundation of a prefecture-level AAC increases the firm entry rate from 2% to 25%. Cross-sectoral coordination is an underlying reason for the higher firm entry rate, in line with the original intention to set up AAC. Our findings are still robust if we expand the sample from 1998--2007 to 1998--2013 and control for the entrepreneurship environment, the increase in market openness, government incentives to attract investment, and government cadre rearrangement.

宏观视角下的大学毕业生就地择业 The Localization of Job Finding by University Graduates in China: A Macro Perspective (in Chinese)

Journal of Sun Yat-sen University (Social Science Edition) 《中山大学学报（社会科学版）》, 2018, 58(4): 196-208.

Abstract: This paper firstly constructs an analytical model for empirically identifying the proportion of university graduates who continue to work or study in the same province after their graduation. Together with the fifth and sixth population census and the provincial statistics of college graduates, the spatial distribution of college graduates in the labor market in 2000-2010 can be examined from a macro perspective. On average, in the first decade that the college graduates choose jobs on their own, more than 70% of college graduates continued to work or study in the province where their alma mater is located. This phenomenon is referred to as "localization of job findings". It cannot be explained by income level, development opportunities, living cost, geographical location, and household registration system. Instead, the localization of job findings is related to the path dependence of university graduates. It is a voluntary choice of university graduates after they take the initial level of regional human capital into account. These robust findings have clear policy implications that the provinces mainly accumulate the high-skilled human capital by the higher education within the province itself.