Knowledge economy and industry performance in China: a provincial level analysis

We construct a framework for investigating the effects of knowledge on industry performance. Using Chinese provincial industry data from 2000 to 2012, we decompose total factor productivity (TFP) change into the four components of embodied technical change, disembodied technical change, scale efficiency change, and technical efficiency change. Our results show a considerably stronger positive effect of advanced knowledge on production technology than of basic knowledge. International knowledge spillovers, particularly trade-induced spillovers, are more effective in inducing TFP growth than domestic spillovers. Our analysis further illustrates a discrepancy in TFP growth rates between regions, and we find TFP of the Central and West Region to be catching-up with the East Region. On average, scale efficiency change is the major contributing factor to regional disparities in TFP change. We discuss several policy implications of our results. Abbreviation: Advanced knowledge (ADV); Share of agriculture (AGR); Basic knowledge (BAS); Chinese Industrial Census (CIC); Data envelopment analysis (DEA); Disembodied technical change (DTC); Embodied technical change (ETC); Foreign direct investment (FDI); Gross domestic product (GDP); Population density (POD); Scale efficiency change (SEC); Stochastic frontier analysis (SFA); International spillovers from foreign countries (SPF); Cross-sectoral external knowledge spillovers within China (SPH); Neutral technical change (TC); Technical efficiency (TE); Technical efficiency change (TEC); Total factor productivity (TFP); International trade (TRD); Degree of urbanization (URB).