Transcript "The Sources & Sustainability of China`s Economic Growth" (Part 1)

-1978, China – 10th largest eco., with a GDP of $150 billions
- 2005, C – 4th largest eco., with GDP of $2.2 trillion
- Instead, measured in PPP, C – 2nd largest eco with $9 trillions
in output ( about 3 quarters that of US)
*
at this growth rate, C’s GDP in terms of PPP could >
US as early as 2010!!
- This rapid eco. Transformation in C has brought in unequal
advances in terms of techno. Change and productivity, of diff
regions and sectors across this country
-There are the presences of two gap:
~ international and internal gap
* adv : provide channel through which catch-up process
can takes place
* disadv :
- threatens social stability
- burdens of catching up will fall on coastal
industry (most technologically advances
sector)
-MR & LR eco growth prospect
~ takes into consideration of the country’s capacity for
institution adaptation –formulate strategies & rules to sustain
inv. in techno. dev. and to facilitate the flow of resources
-Denison ~ sources to catch up:
* resource reallocation, scale economies, movement
towards the int techno frontier
-Denison’s result suggests that:
(a) labor productivity in initially poorer countries grew faster
than it did in the richer countries ~ necessary to catch up
(b) Some labor productivity growth originated from capital
accumulation but for the poor countries the most important
source to catch up is the growth in TFP.
(c) Among the sources of TFP growth, the creation of scale
eco & resource allocation ~ catch up process
-International productivity gap:
~ distance between the int techno frontier and the C’s tech
frontier
~ defined as productivity of Chinese industry @ productivity
of industry of C’s leading coastal services
-Internal productivity gap:
~ disparity between C’s coastal industrial sector and the
country’s lagging agri & services sector & between coastal
industry and the industrial sectors of C’s other regions
- Catch up of C is mainly driven by technological advance,
which in turn driven by the integration of C’s industrial eco
with the world eco.
(I) International gap:
~ labor productivity differential for 27 manufacturing
industry in 4 regions (coastal, northeastern, central and
western)
~ result: food, beverage & tobacco industry are
substantially faster than other C’s industry
*reason: high profits in the tobacco industry
(II) Internal Gap
~ described along two dimensions:
(a) Agricultural-industrial gap
results: gap is large; 2005, the average industrial
worker produced more than 7 times as much as
his/her agricultural counterpart
(b) Regional & sectoral gap
results: 2004, tendency for the gap to shrink,
particularly between the coastal & northeastern
industrial sectors
* In short, although some convergence of labor
productivity has occurred within industry, the
productivity gap between industry and the agri and
services sector generally increased during 1995-2004
Summary:
- Industrial labor productivity across China’s regions is
converging but that coastal industry remains some distance
ahead of the other regions
- Industry data including mining and power generation
suggests a more rapid catch up than other industries, and
follows a pattern in which the capital productivity in noncoastal region falling behind that of the coastal; slowing but
not reversing the TFP
-Industries & regions that are further behind the int
productivity frontier can catch up by imitating or by importing
technology or capital
- rate of labor productivity growth in catch-up industries slows
as these countries move toward the int productivity frontier
- coastal firms generally enjoy higher rates of productivity
growth than firms in non-coastal area
- there’s a potential for manufacturing, the northeastern,
central and western regions to enjoy rapid productivity growth
but will not catch up with the coast, at least not in the MR
Why there is a persistent disparity between the coastal & noncoastal??
-Concentration of FDI and R&D spending in coastal region
- better development of institutional arrangement, including
the legal sys and human cap dev in the coastal region
All these factors enable coastal industry to take greater adv of
int techno than industry in other regions can
(a)Contribution of Labor reallocation
- reallocation of labor from the low- to high-productivity
sectors ---increase output and productivity level
- however, this labor reallocation is subject to diminishing
marginal returns (diminishing contribution to GDP growth
from reallocation). WHY??
(i) with respect to agriculture – there is a diminishing no. of
surplus workers as a share of total workforce.
(ii) widening gap signals for greater productivity gains for
each migrating worker, this also implies for smaller
contributions to GDP
(b) Efficient Reallocation among industrial firms
-Changes in the employment of labor and capital across
industrial firms were positively related to the firm’s initial
levels of labor and capital productivity
- except in the coastal region, growth of labor was more
responsive in the later period of 1995-2000
- responsiveness of capital formation is similar to that of labor
growth; however, in all regions capital was more responsive in
the earlier period.
- higher rates of growth of inputs of labor and capital are
associated with slower TFP growth; firms with initial low TFP
exhibit faster growth of TFP
(c) The contribution of Exit and Entry
-However, there is a shortcoming of the analysis of resource
allocation and productivity convergence – limited to the firms
that survived over the period 1995-2004
- the results for labor productivity show a distinct pattern in
which the existing firms exhibit low productivity where as the
entrants exhibit high productivity
- found that firms with high capital productivity tend to
capture new inv and that the exit-entry phenomenon
contributes substantially to improvements in capital
productivity
-assumption that some observed entry and exit is due to
enterprise structuring & subject to diminishing returns &
overtime, it will contributes less to GDP
-Two major sources of catching up are the increased
allocative efficiency based on the reallocation of
capital and labor to more productive firms and
diffusion of technology to backwards firms; as well as
exit and entry that associated with enterprise
restructuring
- However, all these factors contribute to the increase
in GDP at a diminishing rate!