Agricultural productivity in China

A stylized fact of Chinese agricultural production is a persistently rising cost share of industrial inputs, reflecting the law of diminishing returns. An alternative approach is presented to estimate agricultural productivity by incorporating this characteristic with a CES production function. We find that the elasticity of substitution affects significantly the size of total factor productivity. Our results suggest that the role of industrial inputs may have been underestimated; most of the gain in total factor productivity is attributable to the evolving mix of agricultural output, and the contribution of household farming may not be as large as previously claimed.