China's Economic Growth, The Supply Of Public Goods

Growth has always been an essential issue in the economic field. Since the age of mercantilism, economists have been tempting to reveal the secret of economic growth, and seeking to promote steady growth in long term. However, the"black-box"still remained unopened, and the work of complete explanation of economic growth is far from done.Economists in the classical economic school advocate total economic freedom. They believe the best way to promote economic development is to minimize government intervention and allow"the invisible hand"in the market functioned in full power. However, Adam Smith also explicitly pointed out that, government should be responsible for the sufficient supply of public good. It sounds like public good seems to be more important than"the invisible hand", as to promote economic development. Well, not exactly. But public good do make special contributions to economic development, as on the one hand, it is a kind of basic good which affects everywhere in our life, such as transportation, communication, electricity and water supply facilities, and on the other, its non-rival and non-competitiveness characteristics allow it influences the economy much more greater and wider than private good. The influence of an ordinary private good often exists in the economy until the transaction is taking place. But public good can do more - its positive externalities can place further influences into the economy.Base on the consensus of the importance of public good in economic and social development, many researches regarding the topic can be found. However, most of these papers have been focused on the social effect of public good, and the way to ensure sufficient supply. The research on how the supply of public good promotes economic growth is very rare. Therefore, based on the theory of public good and economic growth, this paper will seek to find out how the supply of public good and its externalities affect the economic growth. Moreover, by comparing effects of different types of public good, we will also suggest varies public good supply policies to promote rapid and steady economic development in long term.This paper has selected four types of public good, which are infrastructure, education, social security and institution, and will analyse the economic effect of each individual. Due the difficulty in quantisation of institution, we will mainly focus on infrastructure, education and social security. The paper can be divided into three parts, which are introduction, analysis of individual public good and comparison of long-term and short-term economic effects of public good.Chapter One is the introduction, which states the background, significance, content, methodology and contribution of the research. Since the open-up reform in 1978, China's economy has been developed rapidly. One was said, if anyone could fully explain China's economic miracle, he/she would be entitled with a Nobel Prize. We believe, the supply of public good must be one of many factors that have contributed to China's economic growth, and therefore seek to explain China's miracle in the angle of public good supply. By conducting such a research, not only could we provide an explanation of China's economic growth in the public good angle, and suggest a few macro policies to ensure future economic development, but also made some contributions to the development of public good and economic growth theory.Chapter Two to Six is the analysis of individual public good. Having reviewed past literatures in chapter two, we found that, most of current researches on economic growth in public good perspectives are focused on one particular type of good. There is hardly any paper on comparison of economic effects of different types of public good, and corresponding supply policies. Nonetheless, these single type findings do helps in enlightening our research.Chapter Three, Four and Five are analysis of economic effects of infrastructure, education and social security correspondingly. In these three chapters, we have divided the economic effect into three waves. In the first wave, we will analyse the direct impact of each type of public good on economic growth by measuring the contribution of their industrial output in national total output. In the second wave, we will analyse the impact of each public good on consumption, investment and foreign trade. In the last wave, we will analyse the impact of these public good on factors of production as well as other factors that affect economic growth. We found that, the average weight of infrastructure, education and social security industries output to national total output was 5.91%, 2.32% and 1.04%, and their average contribution to GDP was 8.47%, 5.19% and 2.52% correspondingly, during the period of 1991 to 2007. Generally, the supply of infrastructure affects economic growth through factor allocation and product circulation; the education affects through human capital and technologies; the social security affects through income redistribution.Chapter Six is the analysis of institutional effects on economic growth. Due to data obtaining problem, we didn't apply the same methodology as in the previous three types of public good. Instead, we seek to explain China's economic growth in the aspects of marketisation, diversification of ownerships and political institution. We found that institutional transformation is one of many key factors to China's economic miracle. In order to achieve further successes in economic growth, we must embrace institutional reform and innovation in both economic and political field.Chapter Seven is the comparison of long-term and short-term economic effects of public good. Based on findings in previous chapters, we found that infrastructure has the most obvious short term effect on economic growth in China. The followings are education, social security and institution. In long term, due to each type of public good has its own advantage, it would not be reasonable to rank their effects on economic growth. In normal circumstances, we suggest that, government can apply public good supply policies based on its economic weakness and strategic plans. However, in the case of economic turbulence, government should take short-term effects of different types of public good into consideration, and adjust supply polices accordingly to ensure stead and rapid economic development.