The impact of regional and institutional factors on labor productive performance - evidence from the township and village enterprise sector in China

Abstract

This paper investigates the impact of regional and institutional factors on labor productivity in China’s Township and Village Enterprise (TVE) sector, one of the pillar industries of the economy. Employing a balanced provincial panel dataset, we find a significant variation in the factors determining regional labor productivity between the three macro-regions. The factors of capital investment intensity, foreign intensity, and export intensity behave differently with a significant regional diversity. Only human capital, the real wage, and firm size are identified as the common determinants across regions. A strong self-reinforcing effect has been found with a high degree of persistence in the behavior of, and hence slow or negligible convergence in labor productivity between regions. We find that the labor efficiency gains have been generated more from internal rather than external economies of scale across regions as well as the country as a whole. We also find that the government privatization reforms have had both a short run and increasingly long-term positive impact on the TVE labor productivity across the regions. This finding may indicate that institutional privatization can be an effective tool in promoting industrialization and labor productive performance in China as well as in other transitional economies.