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Title

Essays on Structural Transformation, Productivity, and Development

Date of Award

Spring 5-15-2015

Author's School

Graduate School of Arts and Sciences

Author's Department

Economics

Degree Name

Doctor of Philosophy (PhD)

Degree Type

Dissertation

Abstract

This dissertation focuses on the macro determinants of economic transformation, and their impact on productivity. The first chapter analyzes the underlying mechanisms that explain the rise of the service sector in China. Along with China's unprecedented growth, the rapid expansion of its service sector is one of the fastest among emerging countries. However, the literature has yet to offer a clear understanding of such expansion. I show that distribution services first grow with the manufacturing sector, followed by personal services as per capita income rises. Motivated by this growth pattern, this chapter provides a theory that describes 1) the complementarity between distribution services and the manufacturing sector, and 2) the substitution between personal services and home production. Quantitative results show that the personal service sector is the key to account for the early and rapid rise of the service sector in China. High productivity growth and high capital intensity in the personal service sector, and labor market frictions are the most important channels. By revealing the growth pattern of the service sector in the early stages of development, the paper thereby contributes to the growing literature on the rising importance of the service economy.

The second chapter studies the role of labor reallocation in explaining the increasingly high aggregate investment rate in China. I build a multi-sector general equilibrium model with non-homothetic preferences to establish a link between labor reallocation and the rising investment rate. As agricultural surplus labor move into the non-agricultural sector, which accumulates capital faster, capital return is sustained at a high level. The quantitative analysis supports that the massive labor reallocation from agriculture to non- agriculture accounts for a substantial portion of the high investment rate.

The third chapter describes and quantifies the role of financial frictions in explaining agricultural productivity differences across regions. We construct PPP-adjusted sector-level data across provinces in China and find large agricultural and aggregate productivity differences between rich regions and poor regions. We then explore household-level survey data and find severe borrowing constraints in rural areas. Limited credit in poor areas depresses the use of intermediate inputs and hence encourages the use of labor input. As a consequence, workers in poor areas are kept in the agricultural sector and agricultural labor productivity remains low. We use a two-sector general equilibrium model featuring non-homothetic preferences, intermediate inputs and limited commitment to explain and quantify the importance of financial development in rural China. Our model predictions are broadly consistent with the empirical evidence from the literature. The quantitative analyses show that credit constraints account for a substantial part of agricultural employment share and labor productivity differences.

Language

English (en)

Chair and Committee

Ping Wang

Committee Members

B. Ravikumar, Yongseok Shin, Juan Pantano, Alexander Monge-Naranjo

Comments

Permanent URL: https://doi.org/10.7936/K7R49NZ8

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