1、1Hong Kongs Productivity and Competitiveness in theTwo Decades of 1980-2000Kui-Wai Li*City University of Hong Kong, Kowloon, Hong KongEmail: EFKWLICITYU.EDU.HKAbstractBy using a growth accounting framework for the period of 1980-2000, this paper estimates Hong Kongs total factor productivity and uni
2、t labor cost of twenty industries classified into three economic sectors of tradable goods, tradable services and non-tradable services. The results show that Hong Kongs total factor productivity has fallen in the 1990s. The competitiveness of the tradable goods, tradable services and non-tradable s
3、ervices has increased, remained competitive and dropped, respectively, in the last two decades. Policy recommendation for Hong Kong will be to minimize the increase in unit labor cost in non-tradable services, while focusing more resources in the expansion of the other two sectors. Key Words: Hong K
4、ong, total factor productivity, growth accounting, labor productivity, economic sectors, industries.Journal of Economic Literature Classification Numbers: O11, O47, O53.First draft: September 2002._* The author would like to thank Mr. Eric Kwok for his excellent research assistance, the APEC Study C
5、enter and the Research Center for International Economics of the City University of Hong Kong for the funding support. The author is responsible for all remaining errors.2I IntroductionVarious approaches have been used to explain Hong Kongs economic success. In additional to such conventional explan
6、ations as export-led and laissez-faire economic policies, a paradigm of economism that encompasses various different economic attributes, behavior and government policies to explain the growth of Hong Kong and three other East Asian economies since the 1950s has been advocated (Li 2002). On total fa
7、ctor productivity, a number of studies on Asian economies (for example, Fu, Huang and Knox-Lovell 1999, Chen 1997, Hsieh 2002) show that total factor productivity in some Asian economies has remained high, other studies, typically Young (1992, 1995), Kim and Lau (1994) and Krugman (1994) find a dist
8、inction between factor quantity and productivity. This paper bring the total factor productivity debate to the distinction between the tradable and non-tradable sectors, especially non-tradable services, as they tend to show a high degree of cost rigidity. By the late 1970s, Hong Kong has become an
9、international financial center and has achieved a fairly matured industrial base that supported domestic exports. Economic reform in Mainland China since 1978 provided Hong Kong with a number of new economic roles (Sung 1991). For example, re-export business was not only revitalized but grew rapidly
10、 in the 1980s. Since the 1990s, structural transformation in the Hong Kong economy tilled towards the rapid growth of services. Geographical proximity and the low factor cost in the Special Economic Zones of Southern China attracted Hong Kongs investment. By the late 1980s, a growing number of light
11、 manufacturing activities migrated, causing a situation of industrial hollowing or de-industrialization in Hong Kong.Hong Kongs robust economic performance since the conclusion of the Sino-British negotiation over the post-1997 Hong Kong in 1982-1984 had led to wealth appreciation and expansion. The
12、 strong presence of a short-term investment behavior, however, exhibited itself excessively on speculative activities in stocks and real estates. The gradual built up of an economic bubble was featured by the expansion of nominal economic activities coupled with shrinkage in real economic activities
13、. By the mid-1990s, a falling level of domestic exports and high cost characterized the Hong Kong economy. Statistics on wage increase show that in the period 1981-1997, tradable goods 3had twice experienced a 2-digit wage increase in both real and nominal terms, while non-tradable services, such as
14、 electricity and gas, transportation, and storage and communication, experienced a total of four and five occasions of 2-digit real and nominal wage increase, respectively (Li 2001). Hong Kongs macro-economy, as shown in Table 1, generally performed better in the 1980s than in the 1990s, and the fir
15、st half of the 1990s is better than the second half of the 1990s. The strong re-export growth lasted till the early 1990s. Growth in domestic investment remained robust in the 1986-1995 decade. Export of services maintained at a high level. The average real GDP growth maintained at five percent for
16、the two decades. Beginning from the early1990s, despite the large total export to GDP ratio, domestic export could not keep pace with its growth rate, and unemployment edged upwards even though it was considered low before 1996. Table 1 Hong Kongs Macroeconomic IndicatorsGrowth Rates ofPeriodAverage
17、 Real GDP (1990 Price)DomesticInvestmentDomestic ExportRe-exportExport of ServicesUnemploymentTotal Export/GDP1981-851986-901991-951996-001981-901991-005.587.545.363.646.565.107.2022.1016.581.2614.567.9614.6412.140.56-4.6213.39-2.0329.2832.3522.044.9030.8013.4716.0018.5813.303.5617.298.433.821.662.1
18、84.162.743.1777.30102.78118.07113.6690.04115.86Sources: Hong Kong Annual Digest of Statistics, Census and Statistics Department, various years.This paper poses two related hypotheses on Hong Kongs productivity. One hypothesis is that the high cost has eroded Hong Kongs overall competitiveness, resul
19、ting in a drop in Hong Kongs total factor productivity. The second hypothesis is that while the tradable service sector has expanded, it is the uncompetitive non-tradable services sector that has contributed to the fall in Hong Kongs competitiveness. This is because a great number of domestic servic
20、es are non-tradable and shielded from foreign competition. Non-tradable services exercise a considerable degree of price rigidity and 4many belong to low-productivity activities. Despite the shrinkage in the tradable goods sector, mainly the manufacturing sector, it is likely that the most productiv
21、e manufacturing activities have remained in Hong Kong. Productivity differentiation can be seen in various sectors: increasing in the manufacturing sector, but falling in the non-tradable services.By using economic data from the two decades of 1980-2000, this paper first uses the national accounting
22、 approach, as in Kim and Lau (1994) and Imai (2001), to work out Hong Kongs economy-wide total factor productivity. The economy-wide capital stock will then be disaggregated to examine the total factor productivity of major economic sectors (tradable goods, tradable services and non-tradable service
23、s). To consider Hong Kongs competitiveness, the paper examines the labor productivity and unit labor cost of the three economic sectors and twenty individual industries to see if differences in unit labor cost between the tradable and non-tradable industries can explain Hong Kongs competitiveness. S
24、ection II uses the national accounting framework to work out the economy-wide total factor productivity. Section III uses a similar framework to examine the total factor productivity of eight official industry classifications and the three economic sectors. Section IV looks at the competitiveness of
25、 the three economic sectors and twenty individual industries. Section V suggests policy recommendations and concludes the paper.II Calculation of Total Factor ProductivityIn the Cobb-Douglas production function, aggregate output (Y) depends on the capital stock (K), the quantity of labor (L) and the
26、 level of technology (A), specified as follows:Y = f (A, K, L). (1)Differentiating Equation (1) with respect to time, and dividing the result by Y, the production function becomes:5. (2)/()/(/ LYFKYFg FK and FL are the factor marginal products and g represents technological progress or an estimate o
27、f total factor productivity, commonly known as the Solow residual. Let sK = FKK/Y and sL = FLL/Y represent the shares of capital and labor factor payment in total output, respectively. A constant return to scale is assumed, meaning that . The 1Lvalue of g can thus be calculated from Equation (2) if
28、all the other variables are known.The data for Hong Kongs capital, labor and output, and the two factor payments have to be constructed. Hong Kongs aggregate output is measured by the production-based real GDP. The GDP deflators are used to deflate the nominal production-based GDP figures to obtain
29、the real figures expressed in constant 1990 prices (Gross Domestic Product 2001, Census and Statistics Department, Tables 2 and 12-14). The capital stock figures are constructed from the accumulation of gross investment. Real gross investment consists of the gross fixed capital formation in the priv
30、ate sector, which includes non-residential building, other construction, real estate developers margin and all machinery and equipment, and change in stocks, expressed in constant 1990 prices. The capital stock figures are estimated from the following equation:Kt = Kt-1 + RNIt. (3)RNI is real net in
31、vestment, which is real gross investment less depreciation. The analysis makes two assumptions, as in Kim and Lau (1994, Appendix I), that a depreciation rate of 5 percent is applied, and the capital stock in 1966 (the earliest year when the gross fixed capital formation figures are available) is se
32、t equal to five times the value of the gross fixed capital formation.The labor input is measured by the number of working hours (H). Employment in each time period is simply the size of the registered labor force (l) less the unemployed. The total number of labor hours is total employment multiplied
33、 by the average number of hours worked per time period. Thus, the labor variable is constructed (see Appendix 1), with u indicating the unemployment rate, as follows:6L = l (1 u) H. (4)Table 2 shows the data for output, capital stock and labor force. Between 1980 and 2000, production-based real GDP
34、increased by 183 percent, while capital stock and labor increased by 341.5 percent and 43.4 percent, respectively. Table 2 Aggregate Date for Productivity AccountingProduction-based Real GDP(HK$ Million)Capital Stock(HK$ Million)Number of Persons Employed(Thousand)Total Labor Working Hours (Million)
35、Adjusted Labor Share198019811982198319841985198619871988198919901991199219931994199519961997199819992000294,204326,808331,293348,642378,216380,049426,524485,179529,293536,489559,446578,310611,119638,592683,577713,063748,981772,094728,843751,161832,643458,018518,300568,171610,610656,216695,292741,480
36、802,796872,544931,877998,3461,072,0071,159,3201,234,4481,347,7651,497,9641,623,6021,772,2471,872,5861,921,5102,022,0532,236.12,393.12,407.12,426.72,505.22,543.32,623.72,680.82,725.02,723.12,711.52,753.72,737.62,800.12,872.82,905.13,073.33,163.63,122.03,112.13,207.35,3635,7405,7735,8206,0096,1006,430
37、6,5006,7496,5746,4476,6336,3526,6876,8606,8317,3877,4567,3587,4647,6930.5290.5270.5500.5620.5550.5790.5590.5320.5220.5340.5480.5450.5300.5280.5110.5390.5330.5410.5760.5910.591Sources: Gross Domestic Product 2001, and Hong Kong Annual Digest of Statistics, Census and Statistics Department, Hong Kong.
38、Table 3 shows the estimates of total factor productivity for the period 1981-2000. Output, capital and labor has grown by 5.34 percent, 7.71 percent and 1.82 percent, respectively. Output experienced the highest growth in the 1986-1990 period, with an average annual growth rate of 8 percent. Capital
39、 experienced a higher growth rate in the 71980s than the 1990s, and the first half of the two decades showed a better performance (8.71 percent and 8.45 percent, respectively) than the latter half (7.50 percent and 6.18 percent, respectively). Although the growth of labor is similar in the two decad
40、es, the growth rates in the 1981-1985 and 1996-2000 periods exceeded two percent. The shares of factor payment between labor and capital remained constant over the years.Table 3 Hong Kongs Productivity Accounting: 1981-2000 (Percentage Annual Growth Rates)Contribution to Y/Y/K/L/sL sK gsL*L sK*K1981
41、-19851986-19901991-19951996-20001981-19901991-20001981-20005.258.044.973.156.644.065.348.717.508.456.188.107.317.712.611.111.172.401.861.781.8255.4653.9153.0556.6454.6954.8554.7744.5446.0946.9543.3645.3145.1545.23-0.073.980.38-0.891.95-0.220.861.450.600.621.361.020.981.003.883.463.972.683.673.303.49
42、Note: The sum of the last three columns should equal to the first column, the decimal figures may result in the difference. Total factor productivity, as represented by , showed an average of 0.86 percent gin the entire 1981-2000 decades. Its performance, however, varied significantly; it has a much
43、 higher performance in the period 1986-1990 (with 3.98 percent) than other periods. In the overall and sub-periods, the contribution of capital to output is higher than labor. Hong Kong experienced high productivity growth in the second half of the 1980s, but fell considerably since the early 1990s.
44、 Despite a fall in the total factor productivity in the two sub-periods of 1986-1990 and 1991-1995, contribution by capital (3.46 percent as compared to 3.97 percent) and labor (0.6 percent as compared to 0.62 percent) were similar. In the period 1996-2000 when the Asian financial crisis occurred, H
45、ong Kong experienced a negative productivity rate of (-0.89), worse than the 1981-1985 period of political uncertainty during the Sino-British negotiation (-0.07). By contrast, labors contribution increased to 1.36 percent in the 1996-2000 period, suggesting that labor productivity rises when unempl
46、oyment increased and cost fell.The total factor productivity figures estimated in Table 3 are not very different from those estimated by Young (1995, Table V, p. 657) and Imai (2001, Table 4B, p. 8373). For example, the estimates for the second half of the 1980s are very close, and the three results
47、 agree that the productivity in the second half of the 1980s was higher than the productivity of the early 1990s.III Industries and Sector Total Factor ProductivityIndustries in Hong Kong are officially classified into eight categories: 1) manufacturing; 2) mining and quarrying; 3) electricity, gas
48、and water; 4) construction; 5) wholesale, retail, import/export trade, restaurants and hotels; 6) transport, storage and communication; 7) financing, insurance, real estate and business service; and 8) community, social and personal services.The real output of each industry is the deflated value-add
49、ed figures. Industry-specific deflators are either based on its value index or volume index (the method of calculating the industry-specific deflators is shown in Appendix 1). Labor is the number of people engaged. The data on the compensation of employees are adjusted to include the self-employed. One assumption is that the share of self-employed in the number of people engaged is the same in all industries. Dividing the adjusted compensation of employee by the total value-added in each industry gives the share of labor income. By dedu
