Research On Impact Of Institutional Change On China's Economy Growth

China has experienced its high economy growth period in recent nearly thirty years, which has enhanced its economic and political status in the world,and has dramatically improved Chinese living standards. This phenomenon has drawn a lot of attention from people abroad and people at home. Some people think of this phenomenon as "growth miracle",while others pay a lot of attention to the factors which leads to the rapid growth of China economy. Thus,many experts and economists have been putting their studies on China economy growth on top list of their research projects, trying to crack the so-called "growth mystery"of China economy.Based on the combination of neoclassical economy growth theory and new institutional economics' views on economy growth,this paper uses some related methods of econometrics to analyze the impact of institutional change on China's economy growth, including model analysis,emperical studies and forecasting reports. On the basis of these analysis,this paper draws some meaningful and useful conclusions,which provide helpful suggestions for policy decision-makers.Firstly,the paper reviews neoclassical economy growth theory and new institutional economics' main ideas about economy growth.Secondly,the paper develops two general growth models for institution-transitional-economy:one includes three factors—labor, capital and institution;the other includes four factors—labor,capital, institution,and technology. All the two models have assumptions that institution is changing with a constant speed and is an exogenous variable and has a Harrod neutral characteristic(labor augmented institutional change) just like technology. Through deducing and analyzing,this paper produces two important conclusions:one is that the growth rate of a transition economy without technology should be equal to its institutional change rate when the economy reaches its steady state. That is to say ifinstitution changes towards to positive direction,the economy will grow. Otherwise,the economy will go into recession. When a transition economy is accompanied with technology advance,then the growth rate should be equal to its institutional change rate plus its technology advance rate. This conclusion is not only supplemental to neoclassical growth theory which totally ignores institution impact on economy growth,but also supplemental to new institutional economics which thinks the only factor affecting economy growth is institution. The other conclusion is that the growth convergence is not absolute but conditional,and one of the conditions is that the institutions,especially economic institutions should converge first. This paper further points out that it is institution's characteristics of public goods that affect economy growth,which include non-rivalness and non-exclusion. These characteristics determine institution has spillover effect and spread effect,which lead to increasing return to scale or decreasing return to scale,affecting the direction and depth of economy growth.Thirdly,emperical analysis in this paper shows some robust conclusions which in some ways proves correctness of above models. The paper divides China's economy growth history since 1950 into three stages according to the features of its institutional change. This paper conducts qualitative analysis of these three stages first ,then quantitative analysis. Based on the characteristics of institutional change and availability of related history data,this paper decides to choose the index of marketization as institution's proxy variable. Although this method takes some risks,this paper holds that since the lack of comprehensive history data,this method is worth a try,and the results show that this method is also feasible. Quantitative analysis takes three steps:first,it calculates TFP changing rate of all three stages,then analyses the relationship between TFP changing rate and correspondmg institution changing rate,and finally tests the assumption of Harrod institution neutrality. The results show that there exists a relatively significant positive correlation and one-way Granger causality between institutional change and economy growth(institutional change is Granger cause of China's economy growth). This means that institution advance has sped up China's economy growth,while institution retreat has slowed down or even reversed China's economy growth. The results also show that lag effect of institutional change on economy growth is very significant and institutional change has the feature of Harrod neutrality. Specificly,the contribution of positive institutional change to China's growth is about 1.7 percent,which of course should befurther proved.Fourthly,this paper forecasts the trend where institutional change will affect China's economy growth in the near future. Technology is eternal,while institutional change is temporary. Thus when institution stops changing,its impact on economy growth will die away. Based on this theory,this paper uses time series analysis methods to establish a forecasting model that shows China's economic institutional change will stop at around 2010. Given one year period of strong lag effect, the paper points out that by the end of 2011,the impact of institutional change on China's economy growth will have diminished to zero. That is to say the China's high growth period will go to end at the 2011,and afterwards China will step into mild growth stage in which economy growth rate will be about 7 percent each year. This forecasting result coincides with other forecasting results made by other well-known experts or organizations. But the forecasting method used by this paper is totally different from ones used by others.Finally, this paper provides a few helpful suggestions for policy decision-makers to make sure China's economy will grow healthily.