This study mainly focuses on estimating the cost structure of the Chinese economy over the period of 1978-2003. The economic characteristics of China are analyzed by applying translog cost function estimation. Four input factors including capital, labor, imports and intermediate goods are specified in the cost function. In addition, technology variable are also employed to investigate the effects the technical change.
Firstly, this study has confirmed the cost structure of the China’s economy is labor-intensive, material-intensive and capital-saving natures
Secondly, the yearly technical change progress is presented, in the year 1978 to 2003 the average technical change rate is 5.8%. Technical change plays an important part in the growth of Chinese economy.
Thirdly, the numerical value of ES is found to be 0.964 indicating that small economies of scale exist in the China’s overall economy.
Fourthly, we combine the technical change rates with efficiency change rate, the total factor productivity growth rate can be calculated, and the average rate is 14.7%.
In conclusion, even through Chinese economy is still the labor intensive economy, it is experiencing a rapid technical change and growth of economies of scale, the total factor productivity grows rapidly.