Empirical Investigation On The Sources Of Chinese Economic Growth

Since the late 1970s, China has become the fastest growing economy in the world. There is no doubt that China has made considerable progress in reforming its economy since 1978. Yet while the gains in output, incomes, exports and so forth are indisputable, the fundamental force underlying the rapid output growth still remains a controversial question.There is growing literature examining China's recent growth experience. This dissertation research contributes to the empirical understanding of Chinese economic growth by growth accounting exercise. For more than a quarter century since the early 1970s, the countries in East Asia also grew at phenomenal rates, leading observers to dub the period the "Asian Miracle". But the rapid growth came to an abrupt end when the financial crisis hit in 1997, with many of the high-performing countries in the region falling into painful recessions. The subsequent debate initiated by Krugman (1994) and then Young (1995) on the sources of growth in East Asian countries has spurred a growing literature on the subject (for detailed literature surveys, see Crafts 1999 and Felipe 1999). Why does the source of growth matter? If the growth is mainly based on capital formation, as the conventional economic wisdom claims, it will not be sustainable for long because the law of diminishing returns (to capital) will eventually prevail. On the other hand, if growth indeed originates from a narrowing of the "idea gap" as the assimilation view claims, no significant opportunity costs need to be incurred to incorporate ideas from abroad (Romer 1993). Instead, ideas can be transmitted to the mutual benefit of producers and no sacrifice of current consumption for future growth is required. Thus, the source of growth is crucial for the long-term perspective of a country.Based on the China's gross domestic product and R&D members the past 30 years, this paper shows that the number of annual of the gross domestic product and R&D members have both increased, yet the total factor productivity (TFP) which on behalf of the entire level of productivity did not keep space with that but fluctuated within a relatively fixed value. This result does not appear the "scale effect" predicted by Romer (1990) in his endogenous growth theory. As such, the dissertation examines the sources of Chinese economic growth from 1982-2005 by adapting a framework developed in Jones (1995), a semi-endogenous growth model eliminating the "scale-effect" phenomenon through amending knowledge production function.The remainder of the paper proceeds as follows. In Chapter 2, progresses in endogenous growth accounting of domestic and foreign are reviewed. In Chapter 3, the semi-endogenous model of R&D-based growth which is originally developed by Jones (1995) is derived. In Chapter 4, the construction of economic indicators and the data used are described. Chapter 5 uses the model to conduct a growth accounting exercise to document the sources of Chinese growth over the period 1982 to 2005. Chapter 6 examines the relationship between the growth of TFP and the expansion of knowledge stocks of both domestic and foreign. Chapter 7 is devoted to explanation of the empirical findings. A final chapter concludes.