A quantitative analysis of Chinese industrial structure and technological change: production functions for aggregate industry,sectoral industries and small scale industry

In this study we estimate the Chinese aggregate, sectoral and small-scale industrial production functions based of three models, the CES(1), CES(2) and Cobb–Douglas production functions. Testing the estimated results we find that the Cobb–Douglas production function is the appropriate functional form for underlying Chinese industrial struture. The study indicates some serious structural and technological problems, such as decreasing returns to scale, unitary substitution between labour and capital, slow technical progress and low economic efficienty. The findings suggest that an intensive industrial development policy should be pursued in China.