The role of resource reallocation in promoting total factor productivity growth: Insights from China’s agricultural sector

Abstract

This study investigates the contribution of resource reallocation to aggregate total factor productivity (TFP) in China's agricultural sector using unique county-level panel data for the period 2002–2016. The factors affecting resource reallocation are also investigated by estimating an unconditional quantile regression (UQR) model. Our results show that there exists an “N-shaped” contribution of resource reallocation to aggregate TFP over time, and on average, resource reallocation increases aggregate TFP by 4.84% annually. The results of the UQR model indicate that government intervention and financial and labor market development affect resource reallocation heterogeneously. In particular, we show that government intervention significantly decreases resource reallocation at the selected quantiles (except for the 70th quantile), with the largest effect occurring at the lowest 10th quantile. Financial market development significantly increases resource reallocation at all the selected quantiles, whereas labor market development significantly increases resource reallocation exclusively at the 10th, 50th, and 70th quantiles.