Is There a Solow Productivity Paradox in China’s Manufacturing Industry: Threshold Effect of Factor Expansion Constraint

Abstract

Despite the integration of China’s manufacturing industry with Information and Communication Technology (ICT) continuing to deepen, total factor productivity (TFP) of the manufacturing industry has not increased significantly as expected. Based on panel data from 28 manufacturing sub-sectors from 2002 to 2020, this study investigates whether the Solow productivity paradox exists. Considering that both the decline of factor expansion constraints and the rise of TFP can promote output growth, this study further discusses the role of factor expansion constraints in shaping the relationship between ICT and TFP. Empirical results indicate that the Solow paradox persists in manufacturing, particularly in sub-sectors heavily dependent on factor inputs. Moreover, the threshold model reveals that only when factor expansion constraints exceed the threshold, the promotion effect of ICT on TFP appears. Further research indicates that ICT can alleviate factor expansion constraints, but this effect has a crowding out effect on its role in improving TFP. This study emphasizes that the impact of ICT on TFP depends not only on external conditions, but also on the application direction of ICT, which provides theoretical support for formulating industrial policies that leverage ICT to enhance TFP.