A Decomposition of Total Factor Productivity Growth in China´s Steel Industry: A Stochastic Frontier Approach

Using the stochastic frontier production function and the decomposition method of total factor productivity made by Kunbhakar, this paper studies the total factor productivity of China´s steel industry during 1981-2003. The result indicates: Capital and TFP play more important roles for output growth while the contribution of labor input is negative. Of all the factors for the growth of TFP, scale economy contributes the most, followed by allocation efficiency of resources. Though technical efficiency has been keeping pace with TFP, it contributes little to TFP growth and thus the improvement of technical efficiency is the key element for improving the efficiency of China´s steel industry.