What Drives the Volatility of Firm Level Productivity in China?

Abstract

The enterprise reforms of the 1990s profoundly changed the structure of the economy in China. Using a fi rm-level dataset collected annually during the period of 1998–2007, this paper examines the variation of productivity volatility across fi rms of different characteristics as well as its evolution over time, and investigates the sources of productivity volatility at the fi rm level. The results suggest that in general, productivity volatility at the fi rm level declined over time in China. Large fi rms, old fi rms, foreign fi rms, and fi rms located in the coastal provinces are less volatile. Firm size and location are the two major factors that drive changes in productivity volatility – one in a positive way and one in a negative way. While the gaps of volatility between smaller fi rms and larger fi rms declined, the gaps between fi rms located in the coastal provinces and inland provinces increased.

Keywords

• enterprise reform
• productivity
• volatility
• china