Measuring mark-up ratios for China's manufacturing industries

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‘Perfect competition’ is a necessary condition for measuring TFP growth that can also be called Solow residual when using the approach of growth accounting, contributed by R. Solow in 1950’s. The question is that in the real world, there are various interventions in product market and factor market, especially in a developing country like China. As an attempt, this study has tried to estimate the mark-up ratio for Chinese manufacturing industry, an index representing the difference between price and marginal cost, and has recalculated the TFP growth by removing such influence of mark-up, that followed the thinkings about Solow residual contributed by Hall and Roeger. This estimation covers 31 sectors and focuses on the period 1993-2010. The following are findings obtained from my measure. (1) Prices of outputs were averagely as high as three times as marginal costs across manufacturing industries in China over the period. (2) The considerably high mark power can be observed in assembly industries and material processing industries. (3) Capital intensive industries were likely to be not competitive, which may come from the large initial investments that makes more obstacles to enter the industries. (4) It was not able to be found that mark-up ratios were clearly higher in industries dominated by the SOEs, although some product markets and factor markets heavily dominated by SOEs as a matter of fact. (5) The recalculated average TFP growth by removing such influence of mark-up shows lower than primal TFP growth rate, and the recalculated average TFP growth since around the year of 2000 is suggested to begin slowdown. (6) The recalculated TFP growth provides the evidence of lower productivities in most energy industries and parts processing industries, and the evidence of high level of productivities in most machinary, equipmet industries and parts of consumer processing goods industries.