The Sources of China's Economic Growth: 1952-1998

Abstract

In this paper, we make an empirical analysis of the roles of total factor productivity (TFP), capital and labor in China's economic growth for 1952-1998, with the consideration of a structural change due to reform in 1978. We find that China's TFP has fluctuated drastically during 1952-1998, due to political instability and policy shocks, and it remained at a low level for 1952-1978. However, it picked up quickly in China's post-reform period, converging to a high level and remains as steady after the 1992 policy shock, as the result of technology adoption. On top of this, a comparison of the roles of TFP, capital and labor in China's growth with those in the East Asian Tigers is made, and we find: for the Tigers, their major deficiency is a low TFP growth; for China, technology adoption leads to a higher TFP growth in the post-reform period, and the problem is an inefficient allocation of capital, due to the official control of credit. Further financial reforms are needed to correct the case.

Keywords: Economic growth, total factor productivity (TFP), East Asia, China

JEL Classification: O47, C51, P52