Structural breaks, rural transformation and total factor productivity growth in China

This paper carries out an empirical investigation into the contribution of rural transformation, which can produce efficiency gains over and above those associated with technical progress, to total factor productivity in China during the post‐reform period 1980–2010. For the first time for China, the roles of rural transformation and technical progress are examined whilst structural breaks are taken into account. We employ Bai and Perron (Econometrica 66:47–68, 1998; J Appl Econom 18:1–22, 2003a; Econom J 6:72–78, 2003b) methods which allow for multiple structural breaks at unknown dates and can be applied for both pure and partial structural changes. We also evaluate the robustness of our results by employing alternative production functions and two capital series. Two structural breaks near the Tiananmen Square incident in 1989 and the implementation of further reforms and opening‐up measures in 1995 were identified for both capital series. We found the contribution of rural transformation to total factor productivity to be significant and positive across all regimes. However, its importance to the growth of total factor productivity has been declining over time, while that of technical progress has been increasing.