Accounting for China's Growth

By L. Brandt, Xiaodong Zhu. Social Science Research Network, 2010

192 citations recorded by the source corpus.

China has achieved impressive growth over the last three decades. However, there has been debate over the sources of the growth, and the role of the intensive versus extensive margin. Growth accounting exercises at the aggregate level (Rawski and Perkins, 2008; Bosworth and Collins, 2008) suggest an equal role for both. For the non-agricultural sector, there have been doubts about the contribution of TFP improvements to growth. For the period between 1978 and 1998, Young (2003) stresses the role of labor deepening, including the reallocation from agriculture, while more recent analysis points to the role of rising rates of investment. Because labor reallocation across sectors, TFP growth at the sector level and investment are all inter-related, simple growth decompositions that are often used in the literature are not appropriate for quantifying their contributions to growth. In this paper, we develop a three-sector dynamic model to quantify the sources of China's growth. The sectors include agriculture, and within non-agriculture, the state and non-state components. We find only a modest role for labor reallocation from agriculture and capital deepening, and identify rising TFP in the non-state non-agricultural sector as the key driver of growth. We also find significant misallocation of capital: The less efficient state sector continues to absorb more than half of all fixed investment. If capital had been allocated efficiently, China could have achieved the same growth performance without any increase in the rate of aggregate investment. This has important implications for China as it tries to re-balance its growth. Finally, in light of important concerns over data, we examine the robustness of our key results to alternative data sets.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/6f42ab8b3623af7e7527c494b67948d47d4192bd

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Citations in the corpus

Factor Market Distortions Across Time, Space and Sectors in China (2011, background): “More specifically, from equation (11) and (12), we have τ l i j ∝ Pi jYi j Li j , (13)”
A Model of China's State Capitalism (2015, background): “where we dene the price markup b pm R W 1 Am (1 )(1) > 1: (7)”
Growing Like China (2011, background): “6 Large productivity differences also emerge from TFP accounting: Brandt, Hsieh, and Xiaodong Zhu ( 2008, Table 17.3 estimate an average TFP gap between DPE and SOE of 1.8 during 1998–2004, while Brandt and Zhu ( 2010 ) estimate a gap of 2.3 in 2004.”
Agricultural productivity, structural change, and economic growth in post-reform China (2013, unknown): “Substituting (6) and (13) into (15) yields”
Economic reforms and industrial policy in a panel of Chinese cities (2016, unknown): “Brandt and Zhu (2010) nd that rising TFP in the private sector was an important driver of China s growth.”
Trade Liberalization and Embedded Institutional Reform: Evidence from Chinese Exporters (2013, background): “, EU and Canadian quotas available from websites maintained by each country, we nd that 32 percent of the 1,017 MFA-UEC product-country observations in our data in 2004 have ll rates exceeding 95 percent.(16)”