Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-30T06:35:53.044Z Has data issue: false hasContentIssue false
  • English
  • Français

What Drives China's Growth?

Published online by Cambridge University Press:  26 March 2020

Linda Yueh
Linda Yueh*
Affiliation:
St Edmund Hall, University of Oxford
*
E-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper analyses the drivers and components of China's economic growth, showing that the structure of the economy is just as important as standard growth factors in determining its growth. The structural reforms that dismantled state-owned enterprises and shifted factors from agriculture to urban areas are key, as are technology transfers and know-how. Taking these factors into account, the paper shows that total factor productivity (TFP) not derived from those one-off reforms accounted for less than one-eighth of China's GDP growth during the first thirty years of the reform period. There are signs that efficiency is improving in the 2000s and productivity must continue to increase for the country to sustain its development.

Keywords

Economic growthChinaeconomic reformproductivityO1P2
Type
Research Articles
Information
National Institute Economic Review , Volume 223 , February 2013 , pp. R4 - R15
Copyright
Copyright © 2013 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acemoglu, D.Johnson, S.Robinson, J., (2005), ‘Institutions as the fundamental cause of long-run economic growth’, in Aghion, P. and Durlauf, S. (eds), Handbook of Economic Growth Amsterdam, Elsevier, pp. 385–472.Google Scholar
Aghion, P.Howitt, P., (1998), Endogenous Growth Theory, Cambridge, Cambridge University Press.Google Scholar
Allen, F.Qian, J.Qian, M., (2005), ‘Law, finance and economic growth in China’, Journal of Financial Economics, 77(1), pp. 57–116.CrossRefGoogle Scholar
Arayama, Y.Miyoshi, K., (2004), ‘Regional diversity and sources of economic growth in China’, World Economy, 27(10), pp. 1583–607.CrossRefGoogle Scholar
Aziz, J.Duenwald, C. K., (2002), ‘Growth-financial intermediation nexus in China’, IMF Working Paper, 02/194.CrossRefGoogle Scholar
Barro, R.J., (1991), ‘Economic growth in a cross section of countries’, Quarterly Journal of Economics, 106/2, pp. 407–43.CrossRefGoogle Scholar
Barro, R.J., (2001), ‘Human capital and growth’, American Economic Review, 91/2, pp. 12–17.CrossRefGoogle Scholar
Benhabib, J.Spiegel, M.M., (1994), ‘The role of human capital in economic development: evidence from aggregate cross-country data’, Journal of Monetary Economics, 34/2, pp. 143–73.CrossRefGoogle Scholar
Berthelemy, J.C.Demurger, S., (2000), ‘Foreign direct investment and economic growth: theory and applications to China’, Review of Development Economics, 4/2, pp. 140–55.CrossRefGoogle Scholar
Biggeri, M., (2003), ‘Key factors of recent Chinese provincial economic growth’, Journal of Chinese Economic and Business Studies, 1/2, pp. 159–83.CrossRefGoogle Scholar
Bils, M.Klenow, P.J., (2000), ‘Does schooling cause growth’, American Economic Review, 90/5, pp. 1160–83.CrossRefGoogle Scholar
Borensztein, E.De Gregorio, J.Lee, J.W., (1998), ‘How does foreign direct investment affect economic growth’, Journal of International Economics, 45/1, pp. 115–35.CrossRefGoogle Scholar
Borensztein, E.Ostry, J.D., (1996), ‘Accounting for China's growth performance’, The American Economic Review, 86(2), pp. 225–8.Google Scholar
Boyreau-Debray, G., (2003), ‘Financial intermediation and growth: Chinese style’, World Bank Policy Research Working Paper, 3027.CrossRefGoogle Scholar
Brandt, L.Zhu, X., (2010), ‘Accounting for China's growth’, IZA Discussion Papers 4764, Institute for the Study of Labor (IZA), Bonn, Germany, pp. 1–59.Google Scholar
Brun, J.F.Combes, J.L.Renard, M.F., (2002), ‘Are there spillover effects between coastal and noncoastal regions in China’, China Economic Review, 13/2-3, pp. 161–9.CrossRefGoogle Scholar
Chen, C.Chang, L.Zhang, Y.M., (1995), ‘The role of foreign direct investment in China post-1978 economic development’, World Development, 23/4, pp. 691–703.CrossRefGoogle Scholar
Chen, B.Feng, Y., (2000), ‘Determinants of economic growth in China: private enterprises, education, and openness’, China Economic Review, 11/1, pp. 1–15.CrossRefGoogle Scholar
Chi, W., (2007), ‘The role of human capital in China's economic development: review and new evidence’, China Economic Review, 19/3, pp. 421–36.Google Scholar
Chow, G.C., (1993), ‘Capital formation and economic growth in China’, Quarterly Journal of Economics, 108/3, pp. 809–42.CrossRefGoogle Scholar
Chow, G.C.Lin, A., (2002), ‘Accounting for economic growth in Taiwan and mainland China: a comparative analysis’, Journal of Comparative Economics, 30/3, pp. 507–30.CrossRefGoogle Scholar
Coe, D.Helpman, E., (1995), ‘International R&D spillovers’, European Economic Review, 39, pp. 859–87.CrossRefGoogle Scholar
Dees, S., (1998), ‘Foreign direct investment in China: determinants and effects’, Economics Planning, 31/2-3, pp. 175–94.CrossRefGoogle Scholar
Démurger, S., (2001), ‘Infrastructure development and economic growth: an explanation for regional disparities in China’, Journal of Comparative Economics, 29/1, pp. 95–117.CrossRefGoogle Scholar
Dobson, W.Safarian, A.E., (2008), ‘The transition from imitation to innovation: an enquiry into China's evolving institutions and firm capabilities’, Journal of Asian Economics, 19/3, pp. 301–11.CrossRefGoogle Scholar
Eaton, J.Kortum, S., (1996), ‘Trade in ideas: patenting and productivity in the OECD’, Journal of International Economics, 40/3-4, pp. 251–78.CrossRefGoogle Scholar
Fleisher, B.Chen, J., (1997), ‘The coast–noncoast income gap, productivity, and regional economic policy in China’, Journal of Comparative Economics, 25/2, pp. 220–36.CrossRefGoogle Scholar
Fleisher, B.Li, H.Zhao, M.Q., (2010), ‘Human capital, economic growth, and regional inequality in China’, Journal of Development Economics, 92/2, pp. 215–31.CrossRefGoogle Scholar
Fleisher, B.Wang, X.J., (2001), ‘Efficiency wages and work incentives in urban and rural China’, Journal of Comparative Economics, 29/4, pp. 645–62.CrossRefGoogle Scholar
Fleisher, B.Wang, X.J., (2004), ‘Skill differentials, return to schooling, and market segmentation in a transition economy: the case of mainland China’, Journal of Development Economics, 73/1, pp. 315–28.CrossRefGoogle Scholar
Gemmell, N., (1996), ‘Evaluating the impacts of human capital stocks and accumulation on economic growth: some new evidence’, Oxford Bulletin of Economics and Statistics, 58/1, pp. 9–28.CrossRefGoogle ScholarPubMed
Graham, E.M.Wada, E., (2001), ‘Foreign direct investment in China: effects on growth and economic performance’, Institute for International Economics Working Paper, 01–03.Google Scholar
Grossman, G.M.Helpman, E., (1991), Innovation and Growth in the Global Economy, Cambridge, Mass., The MIT Press.Google Scholar
Guiso, L.Sapienza, P.Zingales, L., (2004), ‘Does local financial development matter’, Quarterly Journal of Economics, 119/3, pp. 929–69.CrossRefGoogle Scholar
Gylfason, T., (1999), ‘Exports, inflation and growth’, World Development, 27/6, pp. 1031–57.CrossRefGoogle Scholar
Hao, C., (2006), ‘Development of financial intermediation and economic growth: the Chinese experience’, China Economic Review, 17/4, pp. 347–62.CrossRefGoogle Scholar
Harrold, P., (1995), ‘China: foreign trade reform: now for the hard part’, Oxford Review of Economic Policy, 11/4, pp. 133–46.CrossRefGoogle Scholar
Hasan, I.Wachtel, P.Zhou, M., (2009), ‘Institutional development, financial deepening and economic growth: evidence from China’, Journal of Banking and Finance, 33/1, pp. 157–70.CrossRefGoogle Scholar
Hoff, K.Stiglitz, J.E., (2004), ‘After the Big Bang? Obstacles to the emergence of the rule of law in post-Communist societies’, American Economic Review, 94/3, pp. 753–63.CrossRefGoogle Scholar
Hu, A.G.Jefferson, G., (2009), ‘A great wall of patents: what is behind China's recent patent explosion?’, Journal of Development Economics, 90(1), pp. 57–68.CrossRefGoogle Scholar
Hu, Z.L.Khan, M.S., (1997), ‘Why is China growing so fast’, IMF Staff papers, 44/1, pp. 103–31.Google Scholar
Islam, N.Dai, E.Sakamoto, H., (2006), ‘Role of TFP in China's growth’, Asian Economic Journal, 20/2, pp. 127–59.Google Scholar
Jefferson, G.H.Hu, A.G.Z.Su, J., (2006), ‘The sources and sustainability of China's economic growth’, Brookings Papers on Economic Activity, 2, pp. 1–60.CrossRefGoogle Scholar
Jefferson, G.Rawski, T.G.Zheng, Y., (1992), ‘Growth, efficiency, and convergence in China's state and collective industry’, Journal of Comparative Economics, 40/2, pp. 239–66.Google Scholar
Jones, C., (1995), ‘R&D based models of economic growth’, The Journal of Political Economy, 103(4), pp. 759–84.CrossRefGoogle Scholar
Keller, W., (2000), ‘Do trade patterns and technology flows affect productivity growth’, World Bank Economic Review, 14/1, pp. 17–47.CrossRefGoogle Scholar
Krueger, A.B.Lindahl, M., (2001), ‘Education for growth: why and for whom’, Journal of Economic Literature, 39/4, pp. 1101–36.CrossRefGoogle Scholar
Kuo, C.C.Yang, C.H., (2008), ‘Knowledge capital and spillover on regional economic growth: evidence from China’, China Economic Review, 19/4, pp. 594–604.CrossRefGoogle Scholar
La Porta, R.Lopez-de-Silanes, F.Shleifer, A.Vishny, R., (1997), ‘Legal determinants of external finance’, Journal of Finance, 54/20, pp. 1131–50.Google Scholar
La Porta, R.Lopez-de-Silanes, F.Shleifer, A.Vishny, R., (1998), ‘Law and finance’, Journal of Political Economy, 106(6), pp. 1113–55.CrossRefGoogle Scholar
La Porta, R.Lopez-de-Silanes, F.Shleifer, A.Vishny, R., (2000), ‘Investor protection and corporate governance’, Journal of Financial Economics, 58, pp. 3–28.CrossRefGoogle Scholar
Lai, M.Peng, S.Bao, Q., (2006), ‘Technology spillovers, absorptive capacity and economic growth’, China Economic Review, 17/3, pp. 300–20.CrossRefGoogle Scholar
Lemoine, F., (2000), ‘FDI and the opening up of China's economy’, CEPII Working Paper, 2000–11.Google Scholar
Lewis, W.A., (1954), ‘Economic development with unlimited supplies of labour’, Manchester School, 22, pp. 139–91.CrossRefGoogle Scholar
Li, H.Huang, L., (2009), ‘Health, education, and economic growth in China: empirical findings and implications’, China Economic Review, 20/3, pp. 374–87.CrossRefGoogle Scholar
Li, X.Liu, X., (2005), ‘Foreign direct investment and economic growth: an increasingly endogenous relationship’, World Development, 33/3, pp. 393–407.CrossRefGoogle Scholar
Liang, Z., (2005), ‘Financial development, market deregulation and growth: evidence from China’, Journal of Chinese Economic and Business Studies, 3/3, pp. 247–62.CrossRefGoogle Scholar
Liu, T.Li, K., (2001), ‘Impact of liberalization of financial resources in China's economic growth: evidence from the provinces’, Journal of Asian Economics, 12/2, pp. 245–62.CrossRefGoogle Scholar
Liu, X.Burridge, P.Sinclair, P.J.N., (2002), ‘Relationships between economic growth, foreign direct investment and trade: evidence from China’, Applied Economics, 34/11, pp. 1433–40.CrossRefGoogle Scholar
Liu, Z., (2009a), ‘The external returns to education: evidence from Chinese cities’, Journal of Urban Economics, 61/3, pp. 542–64.Google Scholar
Liu, Z., (2009b), ‘Human capital externalities and rural–urban migration: evidence from rural China’, China Economic Review, 19/3, pp. 521–35.Google Scholar
Liu, Z., (2009c), ‘Foreign direct investment and technology spillovers: theory and evidence’, Journal of Development Economics, 85/1–2, pp. 176–93.Google Scholar
Lucas, R.E., (1988), ‘On the mechanics of economic development’, Journal of Monetary Economics, 22(1), pp. 3–42.CrossRefGoogle Scholar
Mankiw, N.G.Romer, D.Weil, D., (1992), ‘A contribution to the empirics of economic growth’, Quarterly Journal of Economics, 107/2, pp. 407–37.CrossRefGoogle Scholar
North, D., (1990), Institutions, Institutional Change and Economic Performance, Cambridge, Cambridge University Press.CrossRefGoogle Scholar
OECD (2002), China in the World Economy: The Domestic Policy Challenges, Paris, OECD.Google Scholar
OECD (2005), OECD Economic Surveys of China, Paris, France.Google Scholar
Persson, T.Tabellini, G., (2006), ‘Democracy and development’, American Economic Review, 96/2, pp. 319–24.CrossRefGoogle Scholar
Pomfret, R., (1997), ‘Growth and transition: why has China's performance been so different’, Journal of Comparative Economics, 25/3, pp. 422–40.CrossRefGoogle Scholar
Prasad, E.S.Rajan, R.G., (2006), ‘Modernizing China's growth Program’, American Economic Review, 92/2, pp. 331–6.Google Scholar
Pritchett, L., (2001), ‘Where has all the education gone’, World Bank Economic Review, 15/3, pp. 367–91.CrossRefGoogle Scholar
Qian, X.Smyth, R., (2006), ‘Growth accounting for the Chinese provinces 1990–2000: incorporating human capital accumulation’, Journal of Chinese Economic and Business Studies, 4/1, pp. 21–37.CrossRefGoogle Scholar
Rajan, R.G.Zingales, I., (1998), ‘Financial dependence and growth’, American Economic Review, 88/3, pp. 559–86.Google Scholar
Ran, J.Voon, J.P.Li, G., (2007), ‘How does FDI affect China? Evidence from industries and provinces’, Journal of Comparative Economics, 35/4, pp. 744–99.CrossRefGoogle Scholar
Rodrik, D., (1999), ‘The new global economy and developing countries: making openness work’, Overseas Development Council (Baltimore, MD) Policy Essay No. 24.Google Scholar
Romer, P.M., (1990), ‘Endogenous technological change’, Journal of Political Economy, 98(5), S71–102.CrossRefGoogle Scholar
Rousseau, P.L.Wachtel, P., (2000), ‘Equity markets and growth: cross country evidence on timing and outcomes, 1980–95’, Journal of Banking and Finance, 24/12, pp. 1933–57.CrossRefGoogle Scholar
Rousseau, P.L.Xiao, S., (2007), ‘Banks, stock markets and China's great leap forward’, Emerging Markets Review, 8/3, pp. 206–11.CrossRefGoogle Scholar
Shan, J., (2002), ‘A VAR approach to the economics of FDI in China’, Applied Economics, 7(34), pp. 885–93.Google Scholar
Sonobe, T.Hu, D.Otsuka, K., (2004), ‘From inferior to superior products: an inquiry into the Wenzhou Model of Industrial Development in China’, Journal of Comparative Economics, 32/3, pp. 542–63.CrossRefGoogle Scholar
Sun, H.S.Parikh, A., (2001), ‘Exports, inward foreign direct investment and regional economic growth in China’, Regional Studies, 35/3, pp. 187–96.CrossRefGoogle Scholar
Temple, J.R.W., (1999), ‘The new growth evidence’, Journal of Economic Literature, 37(1), pp. 112–56.CrossRefGoogle Scholar
Temple, J.R.W., (2001), ‘Generalizations that aren't? Evidence on education and growth’, European Economic Review, 45/4-6, pp. 905–18.CrossRefGoogle Scholar
Tseng, W.Zebregs, H., (2002), ‘Foreign direct investment in China: some lessons for other countries’, IMF Policy Discussion Paper, 02/3.Google Scholar
Van Reenen, J.Yueh, L., (2012), ‘Why has China grown so fast? The role of international technology transfers’, University of Oxford Department of Economics Working Paper 592 and London School of Economics and Political Science Centre for Economic Performance CEP Discussion Paper DP1121, pp. 1–24.Google Scholar
Wang, Y.Yao, Y., (2003), ‘Sources of China's economic growth: 1952–99: incorporating human capital accumulation’, China Economic Review, 14(1), pp. 32–52.CrossRefGoogle Scholar
Wei, S. J., (1993), ‘The open door policy and China's rapid growth: evidence from city-level data’, NBER Working Paper, 4602.CrossRefGoogle Scholar
Wei, Y.Q.Liu, X.M.Parker, D.Vaidya, K., (1999), ‘The regional distribution of foreign direct investment in China’, Regional Studies, 33/9, pp. 857–67.CrossRefGoogle Scholar
Wen, M., (2007), ‘A panel study on China – foreign direct investment, regional market conditions, and regional development: a panel study on China’, Economics of Transition, 15/1, pp. 125–51.CrossRefGoogle Scholar
Whalley, J.Xin, X., (2010), ‘China's FDI and non-FDI economies and the sustainability of future high Chinese growth’, China Economic Review, 21/1, pp. 123–35.CrossRefGoogle Scholar
Woo, W.T., (1995), ‘Comment’, in Terutomo Ito and Krueger, A.O. (eds), Financial Deregulation and Integration in East Asia, Chicago, University of Chicago Press, pp. 102–5.Google Scholar
World Bank, (1997), China 2020, Washington, DC, World Bank.Google Scholar
Wu, Y., (2003), ‘Has productivity contributed to China's growth’, Pacific Economic Review, 8/1, pp. 15–30.CrossRefGoogle Scholar
Xu, C., (2011), ‘The fundamental institutions of China's reforms and development’, Journal of Economic Literature, 49/4, pp. 1076–151.CrossRefGoogle Scholar
Yao, Y.Yueh, L., (2009), ‘Law, finance and economic growth in China: an introduction’, World Development (Special Issue on Law, Finance and Economic Growth in China), 37 (4), pp. 753–62.Google Scholar
Young, A., (2003), ‘Gold into base metals: productivity growth in the People's Republic of China during the reform period’, Journal of Political Economy, 111/6, pp. 1220–61.CrossRefGoogle Scholar
Young, S.Lan, P., (1997), ‘Technology transfer to China through foreign direct investment’, Regional Studies, 31/7, pp. 669–79.CrossRefGoogle Scholar
Yueh, L., (2010), ‘Accounting for labour productivity growth in China in the 2000s’, China Growth Centre (CGC) Discussion Paper No. 1, St Edmund Hall, University of Oxford, pp. 1–65.Google Scholar
Yusuf, S., (1994), ‘China's macroeconomic performance and management during transition’, Journal of Economic Perspective, 8/2, pp. 71–92.CrossRefGoogle Scholar
Zhang, J.Wan, G.Jin, Y., (2007), ‘The financial deepening-productivity nexus in China: 1987–2001’, Journal of Chinese Economic and Business Studies, 5/1, pp. 37–49.Google Scholar
Zheng, J.Bigsten, A.Hu, A., (2009), ‘Can China's growth be sustained? A productivity perspective’, World Development, 37/4, pp. 874–88.CrossRefGoogle Scholar
Zheng, J.Hu, A., (2006), ‘An empirical analysis of provincial productivity in China 1979–2001’, Journal of Chinese Economic and Business Studies, 4/3, pp. 221–39.Google Scholar
Zheng, J.Liu, X.Bigsten, A., (2003), ‘Efficiency, technical progress, and best practice in Chinese state enterprises (1980–1994)’, Journal of Comparative Economics, 31(1), pp. 134–52.CrossRefGoogle Scholar