Productivity Growth and Resource Reallocation Effects in Taiwan: 1981-2015 Tsu-tan Fu, Soochow University Yih-ming Lin, National Chiayi University Chi-ting Lee, Soochow University The Forth Asia KLEMS Conference, Hitotsubashi University, Tokyo, Japan, July 31-August 1, 2017

Progress for the past two years Update: 93SNA  08SNA Update: 1981-2012  1981-2015

Motivation of this research After 1987, Taiwan have experienced a huge industry structure change. The share of primary and secondary sector decreased and the share of tertiary sector increased to almost 70%. The slowdown of Taiwan Economic growth.

Purpose of this research To examine growth dynamics at industry level during 1980-2015 using Taiwan KLEMS database.. To analyze the reallocation effects of resources in Taiwan

Methodology: KLEMS Growth Accounts  

KLEMS Growth Accounts

Growth Accounts  

Growth Accounts  

Taiwan KLEMS Database Outputs (GO, VA): INPUTS (K, L, II, E, M, S): Time period: 1981-2015 30 sectors (1-30 industries in Asia KLEMS manual, skip 31-32 sectors) Outputs (GO, VA): GO = II+ VA (Gross output = intermediate inputs + value added) Using National Income Survey data (08 SNA released by DGBAS,2015) INPUTS (K, L, II, E, M, S): K = capital service L = labor (working hour) II = intermediate inputs (Energy, Material, Service)

Methodology: Production possibility frontier ∆ ln 𝑉= 𝑗 𝑤 𝑗 ∆ ln 𝑉 𝑗 Where Vj is the industry value added and wj is the share of industry value added in the aggregate 𝑤 𝑗 = 𝑃 𝑉,𝑗 𝑉 𝑗 𝑗 𝑃 𝑉,𝑗 𝑉 𝑗 𝑣 𝑇 ≡∆ ln 𝑉 − 𝑣 𝐾 ∆ ln 𝐾− 𝑣 𝐿 ∆ ln 𝐿 Where 𝑣 𝑇 is ∆TFP of Production possibility frontier approach

Methodology: Direct Aggregation across industries ∆ ln 𝑌 𝑗 = 𝑣 𝐾,𝑗 ∆ln 𝐾 𝑗 + 𝑣 𝐿,𝑗 ∆ ln 𝐿 𝑗 + 𝑣 𝑋,𝑗 ∆ ln 𝑋 𝑗 + 𝑣 𝑇,𝑗 𝑌 𝑗 is gross output of industy j, 𝑣 𝑇,𝑗 is the TFP of industry j ∆ ln 𝑌 𝑗 = 𝑣 𝑉,𝑗 ∆ ln 𝑉 𝑗 + 𝑣 𝑋,𝑗 ∆ ln 𝑋 𝑗 ∆ ln 𝑉 𝑗 = 𝑣 𝐾,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐾 𝑗 + 𝑣 𝐿,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐿 𝑗 + 1 𝑣 𝑉,𝑗 𝑣 𝑇,𝑗 ∆ ln 𝑉≡ 𝑗 𝑤 𝑗 ∆ ln 𝑉 𝑗 = 𝑗 ( 𝑤 𝑗 𝑣 𝐾,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐾 𝑗 + 𝑤 𝑗 𝑣 𝐿,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐿 𝑗 + 𝑤 𝑗 1 𝑣 𝑉,𝑗 𝑣 𝑇,𝑗 )

𝑣 𝑇 = 𝑗 𝑤 𝑗 𝑣 𝑉,𝑗 𝑣 𝑇,𝑗 + 𝑗 𝑤 𝑗 𝑣 𝐾,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐾 𝑗 − 𝑣 𝐾 ∆ ln 𝐾 𝑗 𝑤 𝑗 𝑣 𝐾,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐾 𝑗 − 𝑣 𝐾 ∆ ln 𝐾 + 𝑗 𝑤 𝑗 𝑣 𝐿,𝑗 𝑣 𝑉,𝑗 ∆ ln 𝐿 𝑗 − 𝑣 𝐿 ∆ ln 𝐿 = 𝑗 𝑤 𝑗 𝑣 𝑉,𝑗 𝑣 𝑇,𝑗 + 𝑅𝐸𝐴𝐿𝐿 𝐾 + 𝑅𝐸𝐴𝐿𝐿 𝐿 𝑅𝐸𝐴𝐿𝐿 𝐾 Reallocation of capital 𝑅𝐸𝐴𝐿𝐿 𝐿 Reallocation of labor

Figure 1: Industrial structure of Taiwan: 1981-2015 1987 is the year of industrial structure turning in Taiwan. Labor intensive manufacturing industries moved to produce overseas. Primary sector and secondary sector decreased. Tertiary sector increased up to about 67%.

Industry classification code and VA weights (Primary & Secondary) unit:% Sector Industry number 1981 1990 2000 2010 2015 Primary 1.Agriculture, hunting and forestry 7.95 4.29 2.09 1.68 1.79 2.Mining and quarrying 0.83 0.32 0.24 0.14 0.11 Secondary 3.Food products, beverages and tobacco 2.47 1.81 0.78 0.73 0.79 4.Textiles, textile products, leather and footwear 7.13 4.57 1.91 0.95 0.98 5.Wood and products of wood and cork 0.66 0.41 0.08 0.07 6.Pulp, paper, paper products, printing and publishing 1.61 1.31 0.57 7.Coke, refined petroleum products and nuclear fuel 1.30 1.18 1.40 1.15 1.10 8.Chemicals and chemical products 2.58 2.92 2.34 3.28 2.70 9.Rubber and plastics products 1.46 2.15 1.29 0.88 1.01 10.Other non-metallic mineral products 1.93 1.57 0.89 0.74 11.Basic metals and fabricated metal products 3.13 4.11 3.62 3.56 12.Machinery, nec 1.02 1.32 1.22 1.44 1.66 13.Electrical and optical equipment 4.56 5.89 9.34 14.18 16.16 14.Transport equipment 2.49 2.51 1.64 1.35 1.54 15.Manufacturing nec; Recycling 2.90 2.07 1.06 0.81 0.91 16.Electricity, gas and water supply 4.78 3.23 2.24 2.08 17.Construction 4.67 2.75 2.66

Table 1-2: Industry classification code and VA weights (Taiwan) (Tertiary) unit:% Sector Industry number 1981 1990 2000 2010 2015 Tertiary 18.Sale, maintenance and repair of motor vehicles 1.23 2.56 1.55 1.57 1.54 19.Wholesale trade and commission trade 6.54 6.12 9.31 10.38 9.89 20.Retail trade, except of motor vehicles and motorcycles 6.36 5.88 7.15 6.07 6.10 21.Hotel and restaurants 0.93 1.70 2.10 2.20 2.69 22.Transport and storage 4.42 4.47 3.95 2.97 2.99 23.Post and telecommunications 1.72 1.81 1.92 1.65 Fast 24.Financial intermediation 4.14 7.90 8.58 6.53 6.92 Growing 25.Real estate activities 5.24 6.46 8.82 8.90 8.60 Industry 26.Renting of m&eq and other business activities 1.90 2.23 3.68 4.73 4.70 27.Public admin and defence; Compulsory social security 9.39 9.44 8.32 7.75 6.75 28.Education 2.88 3.15 4.30 4.90 4.43 29.Health and social work 0.79 2.68 2.94 3.13 30.Other community, social and personal services 1.76 2.27 2.96 2.80 Industries #19, 20, and 24, 25, 26,27 are service industries with fast growing and high Value-Added weights. They are Trade related & ICT using industries.

Growth rate of Gross output , 198,1991, 2001, 2011

TFP growth rate 30 industry 1981- 1990 1991- 2000 2001- 2010 2011- 2015 Primary 1.AGRICULTURE, HUNTING, FORESTRY AND FISHING 1.46 (1.81) 4.10 (3.13) 0.60 Secondary 2.MINING AND QUARRYING 2.53 (8.41) (11.78) (12.88) (7.16) 3.FOOD , BEVERAGES AND TOBACCO 1.72 3.05 (2.74) 3.92 1.12 4.TEXTILES, TEXTILE , LEATHER AND FOOTWEAR (0.05) (5.53) 3.12 (3.32) (1.21) 5.WOOD AND OF WOOD AND CORK 2.04 3.57 (1.67) (4.68) 0.41 6.PULP, PAPER, PAPER , PRINTING AND PUBLISHING (1.23) 1.87 1.76 2.95 1.18 7.Coke, refined petroleum and nuclear fuel (1.16) (6.28) 4.15 (11.08) (2.56) 8.Chemicals and chemical products 1.67 4.58 (0.66) 11.27 3.25 9.Rubber and plastics 2.41 (0.73) (0.09) (10.63) (1.17) 10.OTHER NON-METALLIC MINERAL 0.88 (0.90) 6.00 (2.94) 1.30 11.BASIC METALS AND FABRICATED METAL (0.00) (6.18) 0.31 (2.30) 12.MACHINERY, NEC 1.68 0.02 0.94 (4.25) 0.10 13.ELECTRICAL AND OPTICAL EQUIPMENT 2.01 0.93 5.18 4.96 3.06 14.TRANSPORT EQUIPMENT (0.65) (3.78) 2.67 1.03 (0.35) 15.MANUFACTURING NEC; RECYCLING (1.79) (1.94) 2.35 (0.76) 16.ELECTRICITY, GAS AND WATER SUPPLY 1.88 6.49 (8.35) 0.50 17.CONSTRUCTION 0.17 1.04 (2.54) (4.55) (1.07)

TFP growth rate 30 industry 1981- 1990 1991- 2000 2001- 2010 2011- 2015 Tertiary 18.Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel (2.12) 2.83 (2.50) 2.14 (5.74) 19.Wholesale trade and commission trade, except of motor vehicles and motorcycles 3.70 4.77 (1.49) 0.77 2.06 20.Retail trade, except of motor vehicles and motorcycles; repair of household goods 2.96 3.42 (7.66) 3.23 0.01 21.HOTELS AND RESTAURANTS 5.01 1.32 (0.54) (3.60) 1.02 22.TRANSPORT AND STORAGE 1.08 1.17 4.47 (0.15) 1.92 23.POST AND TELECOMMUNICATIONS 4.14 8.36 7.98 2.41 6.25 24.FINANCIAL INTERMEDIATION 6.73 0.27 5.80 (1.81) 3.30 25.Real estate activities 6.60 (1.02) 9.90 (9.78) 2.92 26.Renting of m&eq and other business activities (4.97) (1.76) 2.81 (1.65) (1.25) 27.PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY 1.74 0.80 (1.55) 0.98 28.EDUCATION 3.38 2.89 3.34 (0.71) 2.62 29.HEALTH AND SOCIAL WORK 6.36 2.43 2.58 (1.31) 30.OTHER COMMUNITY, SOCIAL AND PERSONAL SERVICES 2.69 (3.85) 4.07 (1.90) 0.50

ICT-USING industries Reallocation Effects (1)   Reallocation of Capital Input 1981-1990 1991-2000 2001-2010 2011-2015 PULP, PAPER, PAPER , PRINTING AND PUBLISHING 0.065 0.009 0.001 (0.001) MACHINERY, NEC 0.020 0.026 (0.002) 0.007 MANUFACTURING NEC; RECYCLING 0.087 0.032 0.012 0.011 Reallocation of Labor Input 0.015 (0.000) (0.006) 0.008 0.010 0.025 0.042 (0.053) 0.005

ICT-USING industries Reallocation Effects (2)   Reallocation of Capital Input 1981-1990 1991-2000 2001-2010 2011-2015 Sale, maintenance and repair of motor vehicles and motorcycles; retail sale of fuel 0.019 (0.016) (0.006) (0.005) Wholesale trade and commission trade, except of motor vehicles and motorcycles (0.033) (0.003) (0.073) Retail trade, except of motor vehicles and motorcycles; repair of household goods (0.021) (0.018) (0.001) FINANCIAL INTERMEDIATION 0.069 (0.076) 0.026 (0.054) Renting of m&eq and other business activities (0.030) (0.059) (0.025) (0.061) Reallocation of Labor Input (0.008) (0.013) 0.009 (0.081) (0.029) (0.046) (0.069) (0.063) (0.050) 0.024 0.003 (0.067) (0.110) (0.017) (0.093) (0.075) (0.049)

ICT Producing Industries-Reallocation effects Reallocation of Capital Input 1981-1990 1991-2000 2001-2010 2011-2015 ELECTRICAL AND OPTICAL EQUIPMENT OPTICAL EQUIPMENT 0.120 0.249 0.375 0.183 POST AND TELECOMMUNICATIONS 0.034 0.033 0.015 (0.000)   Reallocation of Labor Input 0.099 0.050 0.052 0.020 0.011 0.000 0.012 0.003

NON-ICT-Reallocation of Capital Input   Reallocation of Capital Input 1981-1990 1991-2000 2001-2010 2011-2015 AGRICULTURE, HUNTING, FORESTRY AND FISHING 0.440 0.236 (0.014) 0.079 MINING AND QUARRYING 0.001 0.000 (0.001) FOOD , BEVERAGES AND TOBACCO 0.074 (0.011) (0.015) (0.018) TEXTILES, TEXTILE , LEATHER AND FOOTWEAR 0.131 0.028 0.002 (0.004) WOOD AND OF WOOD AND CORK 0.010 (0.006) 0.003 Coke, refined petroleum and nuclear fuel 0.142 0.153 0.051 Chemicals and chemical products 0.375 0.229 0.078 0.019 Rubber and plastics 0.073 0.038 0.014 0.026 OTHER NON-METALLIC MINERAL 0.085 0.072 0.007 0.018 BASIC METALS AND FABRICATED METAL 0.134 0.084 0.023 TRANSPORT EQUIPMENT 0.120 0.127 ELECTRICITY, GAS AND WATER SUPPLY 0.196 0.119 0.016 CONSTRUCTION 0.096 0.047 0.036 0.020 HOTELS AND RESTAURANTS 0.029 0.032 0.062 TRANSPORT AND STORAGE 0.076 0.116 (0.028) 0.033 Real estate activities 0.349 1.241 (0.120) 0.331 PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY (0.166) (0.279) 0.015 EDUCATION (0.065) (0.073) HEALTH AND SOCIAL WORK (0.008) 0.024 0.021 OTHER COMMUNITY, SOCIAL AND PERSONAL SERVICES 0.006 0.061 0.037

NON-ICT industries-Reallocation of Labor Input   Reallocation of Labor Input 1981-1990 1991-2000 2001-2010 2011-2015 AGRICULTURE, HUNTING, FORESTRY AND FISHING (0.021) (0.010) 0.001 MINING AND QUARRYING (0.009) (0.005) (0.004) 0.000 FOOD , BEVERAGES AND TOBACCO 0.006 0.003 TEXTILES, TEXTILE , LEATHER AND FOOTWEAR (0.020) (0.043) (0.017) WOOD AND OF WOOD AND CORK (0.013) (0.002) Coke, refined petroleum and nuclear fuel (0.001) Chemicals and chemical products 0.012 0.008 0.002 0.022 Rubber and plastics 0.013 (0.019) (0.014) 0.005 OTHER NON-METALLIC MINERAL (0.007) 0.010 BASIC METALS AND FABRICATED METAL 0.036 0.026 TRANSPORT EQUIPMENT 0.016 ELECTRICITY, GAS AND WATER SUPPLY 0.009 (0.003) CONSTRUCTION 0.023 0.038 HOTELS AND RESTAURANTS 0.028 0.030 0.015 TRANSPORT AND STORAGE 0.019 Real estate activities 0.011 0.007 PUBLIC ADMIN AND DEFENCE; COMPULSORY SOCIAL SECURITY 0.132 0.047 EDUCATION 0.060 0.072 0.025 0.021 HEALTH AND SOCIAL WORK 0.035 OTHER COMMUNITY, SOCIAL AND PERSONAL SERVICES 0.066 0.080

Reallocation Effects of Capital and Labor Input   Reallocation of Capital Input 1981-1990 1991-2000 2001-2010 2011-2015 ICT-Using-Manufacturing 0.173 0.067 0.011 0.017 ICT-Using-Service 0.022 (0.202) (0.010) (0.225) ICT-Producing-Manufacturing 0.120 0.249 0.375 0.183 ICT-Producing-Service 0.034 0.033 0.015 (0.000) NONICT 2.099 2.236 0.131 0.666 Reallocation of Labor Input 0.058 (0.043) 0.012 0.038 (0.312) (0.269) (0.105) (0.119) 0.099 0.050 0.052 0.020 0.000 0.003 0.394 0.185 0.053 0.164

1981-1990,TFP、Reallocation Effect of Capital and labor

1991-2000,TFP、Reallocation Effect of Capital and labor

2001-2010,TFP、Reallocation Effect of Capital and Labor input

2011-2015,TFP、Reallocation Effect of Capital and Labor Input

Industry Contributions to VA growth, 1981-2015

Industry Contributions to TFP growth, 1981-2015

Findings (1) The empirical results show that Taiwan also experienced the problems of slowdown of TFP growth in the period of 1991-2000 and 2011-2015. The reallocation effects of capital input are very high before 2000, especially in NON-ICT industries.

Findings (2) However, after 2000, the reallocation effects of capital input decrease except ICT-producing industries. The reallocation effects of labor input are negligible or negative, especially in the ICT using industries. The reallocation effects of labor are still remain positive in ICT producing industries.

Findings (3) Among the 30 industries, Electrical and optical equipment (13) Chemicals and chemical products (8), Real estate activities (25), Financial intermediation (24) and Wholesale trade and commission trade, except of motor (19) are ranked the top 5 industries for contributions to value-added growth and TFP growth, 1981-2015.

Thank you for your attention. Comments are welcome!