China’s Economic Growth - 21st Century Puzzle
DOI:
https://doi.org/10.18034/gdeb.v2i2.177Keywords:
China, labour productivity, investment, R&D, Open door policy, exports, OutputAbstract
China’s fast economic growth since 1960s was the result of gradual shift in its economic system, open door policy and its accession to the world trade organization. The institutional reforms and access to foreign markets has been followed by investment strategies expanded 45% of Chinese GDP during last 40 years. The consistent vertical economic growth has no precedent in the economic history of the world. China has increased its share in world trade from 0.5% in 1960 to 10% in 2010 and accumulated foreign exchange reserves of US$3.19 trillion by March 2013. It is not less than a miracle.
The objective of this study is to investigate into the Chinese labour productivity and output in the short and long-run perspective to detect the real source of Chinese economic growth.
Our study is spread over a period starting from 1962 to 2010 because of political and economic stability with minor crisis. The data was taken from China Bureau of National Statistics, IMF, World Bank and relevant research Journals and books. The variables included in this study are: labour productivity, investment, exports, R&D expenses, capital stock, open door policy, real exchange rate and US GDP. The VAR model proposed by Johansen (1988), Johansen and Juselius (1990,1994) and Hendry and Mizon (1993) was used to measure the nature of relations among the above variables. Different tests including unit root test were applied to test the stability of the model.
The Econometric results show that international trade and investment in capital stock and R&D expenses by Chinese Government are the major determinants, which are responsible for enhancing labour productivity and output in the long-run, Similarly, real exchange rate appears as an important determinant to explain change in output in the long-run. US GDP has played no role in explaining Chinese output growth.
JEL Classification Code: F43; O47
Downloads
References
Adams F.G, Gangnes B. And Shachmurove Y. (2006), "Why China is so competitive? Measuring and Explaining China’s competitiveness”, World Economy. Vol. 29, pp 95-122 DOI: https://doi.org/10.1111/j.1467-9701.2006.00773.x
Arayama Y. Miyoshi K. (2004) “Regional diversity and sources of economic growth in China”, World Economy Volume 27, pp 1583-1608. DOI: https://doi.org/10.1111/j.1467-9701.2004.00668.x
Aschauer, D.A. (1988), "Government spending and “Falling rate of "profit", Journal of Economic Perspectives Volume Issue 12, pp 11-17
Aschauer, D.A. (1989) "is Public spending productivity”, Journal of Monetary Economics vol 23, pp 177 - 200 DOI: https://doi.org/10.1016/0304-3932(89)90047-0
Aw, B.Y, S.Chung and M,J.Rober (2000) “Productivity and Turnover in the Export Market: Micro-level Evidnece from the Republic of Korea and Taiwan (China)”, World Bank Economic Review,Volume 14, pp. 65-90. DOI: https://doi.org/10.1093/wber/14.1.65
BaharumshahA.Zand Rashid S. (1999) "Exports and imports and economic growth in Malaysia: Empirical Evidence based on multivariate time series. Asian Economic Journal Volume 13, pp389-406. DOI: https://doi.org/10.1111/1467-8381.00092
Baldwin R. And Seghezza E. (1996) "Trade-induced investment-led growth ," NBER 5582 DOI: https://doi.org/10.3386/w5582
Barrow R. (1991) “ Economic Growth in Cross-section of countries” Quarterly Journal of Economics vol:. 106 pp. 407-447
Blomstrom M. Lipsey R.E and Zejan M. (1996) "is a fixed investment thekey to economic growth? “ The Quarterly Journal of the economy Volume 111, p 269-276. DOI: https://doi.org/10.2307/2946665
Bramall C.(2000), " Sources of Chinese Economic Growth 1978 to 1996" Studies in Contemporary China. Oxford University Press. DOI: https://doi.org/10.1093/0198296975.001.0001
Cameron G. Broadman J. Redding S. (2005) "Technological convergence, R & D, trade and Productivity growth” European Economic Review.vol. 49 pp. 775-807
Chow G.(1993) “Capital formation and Economic Growth in China” The Quarterly Journal of Economics, Vol.108 pp 809-842 DOI: https://doi.org/10.2307/2118409
Chuang Y. (1998) “Learning by doing, the technology gap, and growth” International Economic Review Vol. 39, pp 697-721 DOI: https://doi.org/10.2307/2527396
COE D.T, Helpman E.And Hoffmaister A.W. (1997) " North-South Spillovers” The Economic Journal Vol, 107 pp. 134-149.
Connolly, M. (2003), "The dual nature of trade: measuring its impact on imitation and growth," Journal Development Economics, Vol 72, pp 31-55. DOI: https://doi.org/10.1016/S0304-3878(03)00067-1
De Long J.B and Summer LH (1991) "Equipment investment and economic growth," Quarterly Economics Journal Vol 106 pp. 445-502
De Long c. B, Summers LH and Abel A.B. (1992), " Equipment Investment and Economic
Growth: how Strong is the nexus” Brookings Papers on economic activity vol, 1992 pp. 157-211. DOI: https://doi.org/10.2307/2534583
Easterly W. And Levine R. (2001), "It’s Not Factor accumulation : Stylized Facts and Growth Models” World Bank Economic Review Volume 15, pp. 117-219. DOI: https://doi.org/10.2139/ssrn.269108
Ezaki M. And the sun L. (1999) "Growth Accounting in China for national, regional and provincial Economies: 1981-1995 "Asian Economic Journal Volume 13, pp 39-71 DOI: https://doi.org/10.1111/1467-8381.00074
Frankel J.A and Romer D. (1999) “Does Trad causes growth”, American Economic Review Vol. 89 Ppp. 379-394
Gordon,Rober J (2012) “Macroeconomics”, New Delhi: PHI Learning Private Ltd.
Griffith R., Redding S, and. Renin J.V (2004) “Mapping the two faces of R & D: productivity growth in Panel of OECD industries “ Review of Economics and Statistics, Vol. 86 pp. 883-895
Grossman G.M. And Helpman E. (1991) "Innovation and Growth in the Global economy,"Cambridge, Massachusetts, the MIT Press.
Helpman, E. And P.R Krugman (1985): "Market Structure and Foreign Trade." Massachusetts Institute of Technology Press.
Helpman E. (1988), " Growth Technicalogical Progress and Trade”, Empirical Austrian Economic Papers, Volume 5 Pp. 5-25
Holz, C.A. (2005) “ OECD.-China Governance Project : institutional arrangements for the production of Statistics” OECD Statistics working paper, 2005/1, OECD Publishing.
Holz, C.A. (2006) “ New capital estimates for China”, China Economic Review, vol 17, pp. 142-185 DOI: https://doi.org/10.1016/j.chieco.2006.02.004
Henrique I. And Sadorsky P. (1996) “ Export-led growth or Growth-Driven Export? The Canadian case “ Canadian Journal of Economics Vol. 29, pp. 540-555. DOI: https://doi.org/10.2307/136249
Hendry D.F, and Maison GE (1993) " Evaluating econometric models by encompassing the VAR.” In PC.B Philips (ed). Models,methods and application of econometrics: Essays in Honor
ofA.R.Bergstron MIT Press: Cambridge Mass.
Hewitt P. (2000) “Endogenous Growth and cross-country Income Differences”,AmericanEconomic Browse. Pp. 829-846
Hewitt P. And Aghion P. (1998). “Capital Accumulation and innovation as complementary Factors in Long-term growth”, Journal of Economic Growth. Volume 3, pp 111-130 DOI: https://doi.org/10.1023/A:1009769717601
Johansen, S. (1988) “Statistical analysis of co- integration Vector” Journal of Economic Dynamics and Control, Vol .12,pp 231-254. DOI: https://doi.org/10.1016/0165-1889(88)90041-3
Johansen, S. And Juselius K. (1990) “Maximum Likelihood Estimation and inference on cointegration-with Application to the Demand for money” Oxford Bulletin of Economics and Statistics Volume 52,pp.231-254. DOI: https://doi.org/10.1111/j.1468-0084.1990.mp52002003.x
Johansen S.andJuselius K. (1994) “Identification of the long-term and short-term structure: An Application to the ISLM Model.” Journal of Econometrics Volume 63 pp. 7-36 DOI: https://doi.org/10.1016/0304-4076(93)01559-5
Jones CH. I. (1995) "Time-series tests of Endogenous growth models," The Quarterly Journal of Economics Vol 110 pp. 495-525
Juselius K. (2007),The co-integrated VAR Model: Econometric methodology and applications”, Oxford University Press.
Kwan CCA, Wu Zhang, Y. And J. (1999) "Fixed investment and Economic Growth in China's economy", Economics of Planning Vol. 32, pp 67-79. DOI: https://doi.org/10.1023/A:1003424418042
Lardy NR (1995) "The role of trade and investment in China’s economic transformation" China Quarterly vol. 144 pp. 1065-1082
Liu, X., songs, H., and ROMILLY, P. (1997): “ An empirical investigation of the causal relationship between openness and economic growth in China”.Applied Economics, Vol. 29, pp. 1679-1686 DOI: https://doi.org/10.1080/00036849700000043
Liu, X. Burridge P. And Sinclair PJN (2002) "Relationship between economic growth and foreign direct Investment and Trade: Evidence from China, " Applied Economics Vol. 34, pp 1433-1440. DOI: https://doi.org/10.1080/00036840110100835
Lopez, R.A. (2005): “Trade and growth: Reconciling the Macroeconomics and Microeconomic Evidence”, Journal of Economic Surveys Vol.19 pp. 623-648.
Lucas R. (1988) "On the mechanisms of economic growth," Journal of Monetary Economics Volume 22, pp 3.42. DOI: https://doi.org/10.1016/0304-3932(88)90168-7
Madsen, J.B (2002) "The causality between investment and economic growth", economic Letters, Vol. 74, pp157-163. DOI: https://doi.org/10.1016/S0165-1765(01)00549-3
Martin Sala-i- et al (2009) “Economic Growth”. New Delhi: PHI Learning, India.
Melitz, M.J (2003) “The impact of trade on intra- industry Reallocations and Aggregate Industry Productivity, Econometrica, Vol. 71, pp. 1695-1725
Nielsen H. Christensen A. (2005) "U.S. monetary policy 1988-2004: An empirical analysis" Finance Research Unit, Institute of Economics, University of Copenhagen, WP No. 2005/01.
Nolan, P. (1995) "China’s rise,, Russia Fall" London, Macmillan. DOI: https://doi.org/10.1057/9780230378360
Noguer M. And Siscart M. (2005) Trade raises income: a precise and robust”, Journal of International Economics Vol. 65 pp. 447-460
Pack H.and Page J. (1994) "Accumulation, exports and growth in the high performing Asian economies," Carnegie Rochester conference series on public policy. vol. 40 pp. 199-235.
Park S. and Kwon J. (1995) “ Rapid Economic growth with increasing returns to scale and little or no Productivity growth,” The Review of Economic and Statistics Vol. 77 pp. 332-351
Perkins, D. (1994) "Completing China’s move to the market?" Journal of Economic Perspective Vol. 8, pp 23 - 46 DOI: https://doi.org/10.1257/jep.8.2.23
Prasad, E.S. And Rajan, R.G. (2006): “Modernizing China’s growth Paradigm”,, American Economic” Review, Vol. 96 pp. 331-336.
Qin D., Cagas A., Quising P. The X (2005) "How much does Investment Drive Economic Growth in China?" Queen Mary University of London, Department of Economics, Working Paper No. 545.
Rahbek, A., Hansen, E. And Dennnis J.G. (2002): "ARCH innovations and their impact on co-integration rank Testing”, Department of Statistics and Operations, University of Copenhagen. WP No. 22, Centre for analytical Finance.
Rebelo S. (1991), " Long-run policy Analysis and Long-run Growth,” Journal of Political Economy Vol. 99 Pp. 500-521.
Riezman, R.G, Summers, P.M and Whiteman, C.H (1996): “The engine of Growth and its handmaiden? A time series assessment of export-led growth”, Empirical Economics, Vol. 21, pp. 77-113.
Roderick D. (1995), "Getting the interventions right: how South Korea and Taiwan grew rich", Economic policy Volume 10 pp. 53-107.
Roderick D. (1996), "Understanding Economic Policy Reforms," Journal of Economic Literature, Vol. 34 p 9-41.
Romer P. (1986) “Increasing Returns and Long-Run growth”, Journal of Economics Perspectives Vol. 8 Pp. 3-22
Shan J. And the sun F. (1998) “ On the Export-led Growth hypothesis: the Economic evidence from China”, Applied Economics Vol. 30 PP 1055-1065 DOI: https://doi.org/10.1080/000368498325228
Wang and Yao (2003) “Sources of China’s economic growth 1952 - 1999: Integrating human capital accumulation”, China Economic Review, vol 14, pp. 32-52. DOI: https://doi.org/10.1016/S1043-951X(02)00084-6
Wolf E.N. (1991) “Capital Formation and Productivity Convergence over the Long Term” , American Economic Review. Vol. 81. Pp. 565-579
Wu, Y. (2000), "productivity, growth and economic integration in the South China region." Asian Economic Journal Vol. 14, p 39-53. DOI: https://doi.org/10.1111/1467-8381.00099
Young A. (1991) “Learning by doing and the dynamics of the effects of international trade” The quarterly Journal of Economics, Vol.106 pp. 369-405
Young A. (2003) " Gold into base metals: productivity growth in the People's Republic of China during Reform period," Journal of political and economic vol . 111 pp. 1220-1261
Yu Q (1998) "Cspital investment, international trade and economic growth in China: Evidence in 1980 - 90S", China Economic Review, Volume 9, pp 73-84. DOI: https://doi.org/10.1016/S1043-951X(99)80005-4
--0--
Downloads
Published
Issue
Section
License
How to Cite
