PROVINCIAL PRODUCTIVITY IN CHINA time t, g, as the rate of technological change, and Eu as an error term with the usual properties, which may also be viewed as random productivity shocks. The labor force evolves as Lio e"! where n, is the rate of labor force growth. Output per worker, a close correlate of income per capita, is y,=A.Ai- -b where y= Y/L and k= K/L From Eq (1), we specify a Solow growth equation B B which, on the basis of the assumption that convergence to the steady state occurs at the rate x(0<x< 1), leads to In In (In A1, 0+g1,+ g2/) (1-e-)ny/-1+l(3) Our TFP estimates are based on Eq. (3), which allows us to obtain all produc- tion-function parameters directly and simultaneously and does not require data on the capital stock 2. 3. Explaining Technological Change Making the standard growth accounting assumption that the error term in e above equations, uil, represents provincial productivity shocks, we define TFP in year t as TH Ai0 +814+ g2F + ui, and specify the following regression equation to explain provincial TFP differentials In amAmis-1+ asC+ ant agf+aoCI aioN Ti-I +U,(4) where the right-hand variables and hypothesized qualitative relationship with TFP are The quadratic trend term was suggested by an anonymous referee to capture a possible slowdown in TFP growth that may have occurred around 1985. This may be inferred by comparing the empirical results of Lau and Brada(1990)with those of wu(1995)PROVINCIAL PRODUCTIVITY IN CHINA 223 time t, gi as the rate of technological change, and ei,t as an error term with the usual properties, which may also be viewed as random productivity shocks.5 The labor force evolves as Li,0 Å eni t , where ni is the rate of labor￾force growth. Output per worker, a close correlate of income per capita, is yi,t Å Ai,tk10b i,t where y å Y/L and k å K/L. From Eq. (1), we specify a Solow growth equation ln yi,t Å 1 1 0 b (ln Ai,0 / g1i / g2i t 2 ) / b 1 0 b ln si,t01 0 b 1 0 b ln ni,t / wi,t , (2) which, on the basis of the assumption that convergence to the steady state occurs at the rate l(0 õ l õ 1), leads to ln yi,t 0 ln yi,t01 Å (1 0 e0lt )F 1 1 0 b (ln Ai,0 / g1i / g2i t 2 ) / b 1 0 b ln si,t01 0 b 1 0 b ln ni,tG 0 (1 0 e0lt )ln yi,t01 / ui,t . (3) Our TFP estimates are based on Eq. (3), which allows us to obtain all produc￾tion-function parameters directly and simultaneously and does not require data on the capital stock. 2.3. Explaining Technological Change Making the standard growth accounting assumption that the error term in the above equations, ui,t , represents provincial productivity shocks, we define TFP in year t as ti,t Å Ai,0 / g1i t / g2i t 2 / ui,t and specify the following regression equation to explain provincial TFP differentials. ln ti,t Å a0 / ∑ 5 mÅ1 amxm,i,t01 / a6C / a7t / a8t 2 / a9Ct / a10ln ti,t01 / £i,t , (4) where the right-hand variables and hypothesized qualitative relationship with TFP are 5 The quadratic trend term was suggested by an anonymous referee to capture a possible slowdown in TFP growth that may have occurred around 1985. This may be inferred by comparing the empirical results of Lau and Brada (1990) with those of Wu (1995). AID JCE 1462 / 6w10$$$122 09-30-97 14:16:24 cea