Firm Heterogeneity, Biased Technological Change, and Total Factor Productivity : Evidence from China

Biased technological change plays an important role in the growth of total factor productivity, TFP. This paper measures TFP and decomposes it into biased technology and technical efficiency. We suggest an alternative production function of Zhang (2019) to generate consistent estimates. By using the data of Chinese industrial firms, We find that the capital-augmenting and labor-augmenting technologies increase faster than the material-augmenting one, which means the technological change is biased to the material with factors being gross complements. The aggregate TFP growth is 1.87% per year, of which three-fourths are contributed by biased technological change