Working Paper: NBER ID: w21657
Authors: Keting Shen; Jing Wang; John Whalley
Abstract: Popular literature suggests a rapid narrowing of the technology gap between China and the U.S. based on large percentage increases in Chinese patent applications, and equally large increases in college registrants and completed PhDs (especially in sciences) in China in recent years. Little literature attempts to measure the technology gap directly using estimates of country aggregate technologies. This gap is usually thought to be smaller than differences in GDP per capita since the later reflect both differing factor endowments and technology parameters. This paper assesses changes in China’s technology gaps both with the U.S. and India between 1979 and 2008, comparing the technology level of these economies using a CES production framework in which the technology gap is reflected in the change of technology parameters. Our measure is related to but differs from the Malmquist index. We determine the parameter values for country technology by using calibration procedures. Our calculations suggest that the technology gap between China and the U.S. is significantly larger than that between India and the U.S. for the period before 2008. The pairwise gaps between the U.S. and China, and the U.S. and India remain large while narrowing at a slower rate than GDP per worker. Although China has a higher growth rate of total factor productivity than India over the period, the bilateral technology gap between China and India is still in India’s favor. India had higher income per worker than China in the 1970’s, and China’s much more rapid physical and human capital accumulation has allowed China to move ahead, but a bilateral technology gap remains.
Keywords: Technology Gap; China; India; US; CES Production Function
JEL Codes: O41; O47; O57; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| technology gap between China and the US (L63) | technology gap between India and the US (O51) |
| China's growth rate of total factor productivity (O49) | bilateral technology gap between China and India (O57) |
| India's income per worker in the 1970s (E25) | bilateral technology gap between China and India (O57) |
| China's accumulation of physical and human capital (E22) | bilateral technology gap between China and India (O57) |
| pairwise technology gap between China and US (O33) | pairwise technology gap between India and US (O51) |