Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Gothenburg, Department of Economics

No 130: Structural Change, Capital’s Contribution, and Economic Efficiency: Sources of China’s Economic Growth Between 1952-1998

Zijian Wang and Jiegen Wei ()
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Zijian Wang: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Jiegen Wei: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG

Abstract: This paper examines the effects of structural change, long-term TFP trend and marginal return to capital on China’s economic growth, comparing such effects with those in the other East Asian economies. Our empirical results show that China’s TFP converges to a higher level, and that the marginal return to capital declines dramatically in the late 1990s. Capital contributes much less, while labor contributes more to China’s post-reform growth. China is catching up via technology adoption from the developed economies, and this in turn results in higher TFP growth. Future growth hinges on improving efficiency in the capital allocation system, whose distortions cause the declining marginal return to capital.

Keywords: economic growth; total factor productivity; capital contribution; GARCH model

JEL-codes: C22; C89; O38; O47; O53

23 pages, First version: March 12, 2004. Revised: April 5, 2004.

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