Transcript roland2009l2

Lecture 2. Understanding
China’s Growth.
Introduction.
• Despite China’s remarkable growth, there is not
much literature trying to explain its very high
growth rates.
• There is much speculation about the causes of
Chinese economic growth and about predictions
for the future.
• Many of the data, especially from the past, are
problematic and subject to criticism.
• We are at a stage where we get mostly only
macroeconomic estimates.
• Yt=AtF(Kt,Lt)
• The big questions turn around
• Kt (capital stock). Problem of valuation of
socialist capital.
• At (total factor productivity).
• Lt also raises problems of its own
(problems associated to one child policy)
Hu-Khan (1997)
• IMF team report.
• Kt grew by 7% between 1979-94 but
capital output ratio has remained more or
less constant (no capital deepening).
• Estimate TFP growth of 3.9% in that
period (compared to 2% for Asian tigers).
Explain by success of reforms.
Chow-Li (2002)
• Yt = AetKtLt
• Ln Yt = a0 + a1lnKt + a2 lnLt +a3t
.6136 .4118 .0263
(.0772) (.1996) (.0025)
• Trend only significant after 1978.
• Suggests constant returns to scale (a1 +a2 not
different from 1).
• Ln (Yt/Lt) = a0 + a1ln (Kt/Lt) +a3t
.5577
.03028
(.0468) (.0040)
Chow-Li (2002)
• Suggests a 3% annual growth in TFP from 1978
to 1998.
• Growth of 9.1% can be decomposed in
– 5% due to capital (.5577 X 9.1)
– 3% due to TFP growth
– 1.1% due to labor [(1-.5577)x2.7]
• Growth due mostly to capital accumulation and
TFP growth (1/3 of growth explained by TFP
growth).
• Projections of 8% annual growth until 2010.
Were not proven wrong.
Young (2003)
Contrarian view critical of official statistics (1978-1998).
1. Statistical Bureau reluctant to revise downward
estimates.
2. Problems with reporting nominal and constant output
by enterprises. Leads to underestimation of deflator by
1.7 to 2.5 %.
3. Proposes reconstruction of many data but with not too
many differences.
1.
2.
3.
4.
5.
Output per capita growth at 6.1% (instead of 7.8),
output per worker at 5.2% (instead of 6.9) due to rising
participation rates,
non agricultural output per worker at 3.6% (instead of 6.1%)
non agricultural output per effective worker to 2.6% (instead of
5%),
non agricultural TFP per worker at 1.4 (instead of 3).
Perkins-Rawski (2007)
• Try to predict growth over the next two
decades.
• Growth accounting:
• TFP growth = gY – aKgK -aLgL
• gY , gK , gL growth rates of GDP, capital
and labor.
• Shares of capital and labor aK,aL in total
factor payments (in total national income).
Perkins-Rawski (2007)
• Use official statistics. Accept possible deflator
problems but also underestimation of service
sector. Moreover, quality adjustments not
applied in existing price indices.
• Use 2000 prices to avoid inflated industrial
prices from socialism.
• Capital stock estimated using annual investment
outlays and depreciation rate of 9.6% (perpetual
inventory method)
• Labor measured as population 16-65 and
decomposing in 5 education categories (no
diploma, primary, junior high, high school,
college).
Perkins-Rawski (2007)
• Inconsistencies between census and data on
graduation. Build data using age-specific
mortality rates and graduation rates.
• L = L1 + L2 + L 3 + L4 + L5
• H = w1L1 + w2L2 + w3L3 + w4L4 + w5L5
• wi are education-linked wage differentials.
• H/L measures educational attainment.
Table 1
Non-student Working Age Population, 1952-2005
Headcount, Educational Attainment, Education-enhanced Total
Year
1952
1965
1978
1990
2000
2005
Total Number L
Age 16-65
313,346,294
372,783,230
506,667,822
722,042,872
808,414,668
849,636,604
Mincer weights from
2000 wage data
Percentage of Workers in Each Education Category
No diploma
Primary
Junior High Senior High
Tertiary
73.9
56.8
39.6
27.6
18.5
15.1
19.6
30.2
33.4
33.5
34.4
32.8
4.8
9.2
20.6
25.8
30.6
33.6
1.4
3.0
5.7
12.1
14.7
15.7
0.4
0.8
0.7
1.0
1.8
2.7
0.818
1
1.346
2.010
3.277
Source: Appendix. Working age population includes ages 16-65.
Perkins-Rawski (2007)
Ratio
H/L
0.90
0.98
1.07
1.18
1.26
1.31
Table 2
Average Annual Growth of GDP, Fixed Capital, Labor, and TFP,
With Contributions to TFP Growth, 1952-2005 (percent)
Period
GDP
1952-2005
1952-1978
1952-1957
1957-1978
1957-1965
1965-1978
1978-2005
1978-1985
1985-1990
1990-1995
1995-2000
2000-2005
7.0
4.4
6.5
3.9
2.4
4.9
9.5
9.7
7.7
11.7
8.6
9.5
Average Growth of Inputs
Percentage Shares of GDP
Labor Input
Growth Attributable to
Average
Fixed
Raw Education
TFP
Fixed Education
Capital Labor Enhanced Growth Capital Enhanced TFP
K
L
H
K
Labor H
7.7
5.8
1.9
6.7
5.2
7.7
9.6
9.2
6.9
9.1
10.5
12.6
1.9
1.9
1.2
2.0
1.5
2.4
1.9
3.4
2.5
1.4
0.9
1.0
2.6
2.5
1.7
2.7
2.1
3.1
2.7
4.5
2.9
1.9
1.6
1.8
2.1
0.5
4.7
-0.5
-1.0
-0.2
3.8
3.2
3.1
6.7
3.2
3.1
47.7
56.3
12.7
73.7
93.1
67.7
43.7
40.6
38.8
33.3
52.7
57.1
21.4
32.7
14.9
39.7
49.5
36.7
16.2
26.6
21.5
9.5
10.5
10.6
Source: Appendix.
Note: Calculations assume that 1952 capital stock is two times that year's GDP;
assumed depreciation rate is 9.6 percent.
Perkins-Rawski (2007)
30.9
11.0
72.4
-13.4
-42.6
-4.4
40.1
32.8
39.7
57.3
36.8
32.3
19
52
19
54
19
56
19
58
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
Percent
Figure 2
China: Fixed Capital Formation Proportions, 1952-2005
60
50
40
30
2000 prices
20
10
0
Current prices
• Japan’s postwar growth based on TFP
growth. Half of 9% growth rate between
1950 and 1970 explained by TFP. Later
slowdown associated to fall in TFP growth.
• Question: Will the growth continue?
Year
1990
2000
2005
2015
2025
2035
2045
Population and Dependency Ratio, 1990-2025
Population
Percentage Share
(Millions)
Working Age 16-65
Dependents
1,130
1,263
1,308
1,390
1,457
1,489
1,497
Include
Exclude
Include
Exclude
Working Age Students Working Age Students
65.4
64.1
34.6
35.9
66.7
64.5
33.3
35.5
68.8
65.3
31.2
34.7
70.6
66.4
29.4
33.6
67.9
63.4
32.1
36.6
64.1
35.9
61.4
38.6
Source: Data for 1990 from official census results for that year.
Dependents are defined as persons aged under 16 and over 65.
High school and college students: appendix to this paper
Low dependency ratio imply robust household savings
Projections of Working Age Non-Student Population Ages 16-65: Size and Composition, 2005-2025
Labor Force and Graduates
(Millions)
Year Working Age
Non-students
L
2005
849.6
2010
885.3
2015
913.4
2020
903.6
2025
885.6
Annual
Graduates
Senior Tertiary
High
8.3
3.1
9.9
5.0
12.8
5.0
11.5
6.9
12.8
6.6
Educational Composition of Non-student
Workforce
No
Diploma
15.1
11.6
9.5
7.4
5.7
(Percent)
Primary Junior
High
32.8
33.6
29.3
36.6
25.3
37.8
21.9
38.2
19.4
37.0
Senior
High
15.7
17.8
20.2
21.7
23.2
Tertiary
2.7
4.7
7.2
10.8
14.7
Decline of L after 2015 but increasing human capital
Ratio
H/L
1.31
1.39
1.48
1.58
1.69
Productivity Consequences of Input Projections and 6 or 9 Percent Growth to 2025
Period
Annual
Average Growth of Inputs %
GDP
Labor Input
Annual Growth of GDP (%)
Average
Attributable to
TFP Share
Growth
Fixed
Raw
Education
TFP
Fixed
Education
TFP
of GDP
%
Capital
Labor
Enhanced
Growth
Capital
Enhanced
Growth
Growth
Labor
Labor
K
L
H
%
K
H
percent
Version 1
2005-2015
2015-2025
9.0
9.0
9.8
8.2
0.7
-0.3
2.0
1.0
3.6
4.9
4.2
3.5
1.1
0.6
3.6
4.9
40.4
54.4
Version 2
2005-2015
2015-2025
9.0
9.0
9.0
6.6
0.7
-0.3
2.0
1.0
4.0
5.6
3.9
2.8
1.1
0.6
4.0
5.6
44.5
62.4
Version 3
2005-2015
2015-2025
6.0
6.0
8.1
5.6
0.7
-0.3
2.0
1.0
1.4
3.0
3.5
2.4
1.1
0.6
1.4
3.0
23.1
50.7
Version 4
2005-2015
2015-2025
6.0
6.0
7.3
4.0
0.7
-0.3
2.0
1.0
1.7
3.7
3.1
1.7
1.1
0.6
1.7
3.7
28.7
61.7
Memo item: average TFP growth 1978-2005: 3.8 percent (Table 2)
Versions 1 and 2 assume 9% GDP growth; Versions 3 and 4 assume 6% growth
Ratio of fixed capital formation to GDP declines linearly from the 2005 figure of 42.3 % to
a terminal 2005 level of 35 percent (Versions 1 and 3) or 25 percent (Versions 2 and 4).
Country
Year
start
of
slowing
Period
Growth
Period
Growth
before
slowdown
Rate
Before
after
slowdown
Rate
After
Japan
1971
19481970
Taiwan
1990
1980-89
Korea
1992
1982-91
PPP
GDP
per cap
at
slowdown
(2005
Exch
Rate
GDP at
slowdown
prices)
10.72
1971-78
2.605
13800
16500
8.56
1990-99
6.304
13370
10880
9.05
19922005
5.28
13370
8810
It would take China 10-15 years at least to reach
PPP GDP per capita of $13,000 ($5,300 in 2007).
How productive is investment in
China?
• China has had a very high investment rate
(around 40%). This suggests that the
marginal product of investment might be
low (too much investment and allocative
inefficiencies). However, a very high
marginal return to capital might explain a
high investment rate.
• Bai et al. (2006) have addressed this
question.
How productive is investment in
China?
• Use revised output estimates after 2004
census (covers 1978-2004).
• Assume depreciation rate of 8 % for
structure and of 24 % for machinery. Use
estimate of initial stock for 1952 plus gross
fixed capital formation.
• Estimate share of capital income as
residual of labor income.
How productive is investment in
China?
• Estimates relatively high even though
falling.
• Why have returns remained high?
– Capital-output ratio has not increased much
– Capital share has increased steadily together
with increase in the investment rate.
How much misallocation of capital
in China?
• There is a strong perception that despite
strong growth, there may be a severe
misallocation of capital in China.
• General idea: if distortions favor certain
firms, they can survive with lower TFP
than firms that do not benefit from those
distortions. Hsieh and Klenow (2008).
Open questions
• China’s growth will affect the global
economy and there may be feedback
effects.
• Energy.
• Environment.