- Xiaodong Zhu
Journal of Economic Perspectives
vol. 26,no. 4, Fall 2012
(pp. 103-24)
(Complimentary)
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Abstract
The pace and scale of China's economic transformation have no historical precedent. In 1978, China was one of the poorest countries in the world. The real per capita GDP in China was onlyone-fortieth of the U.S. level and one-tenth the Brazilian level. Since then, China's real per capita GDP has grown at an average rate exceeding 8 percent per year. As a result, China's realper capita GDP is now almost one-fifth the U.S. level and at the same level as Brazil. This rapid and sustained improvement in average living standard has occurred in a country with more than20 percent of the world’s population so that China is now the second-largest economy in the world. I will begin by discussing briefly China's historical growth performance from 1800 to1950. I then present growth accounting results for the period from 1952 to 1978 and the period since 1978, decomposing the sources of growth into capital deepening, labor deepening, and productivity growth. But the main focus of this paper will be to examine the sources of growth since 1978, the year when China started economic reform. Perhaps surprisingly, given China's well-documented sky-high rates of saving and investment, I will argue that China’s rapid growth over the last three decades has been driven by productivity growth rather than by capitalinvestment. I also examine the contributions of sector-level productivity growth, and of resource reallocation across sectors and across firms within a sector, to aggregate productivity growth.Overall, gradual and persistent institutional change and policy reforms that have reduced distortions and improved economic incentives are the main reasons for the productivity growth.Citation
Zhu, Xiaodong.2012."Understanding China's Growth: Past, Present, and Future."Journal of Economic Perspectives, 26 (4): 103-24. DOI: 10.1257/jep.26.4.103JEL Classification
- E23Macroeconomics: Production
- I31General Welfare
- N15Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Asia including Middle East
- O11Macroeconomic Analyses of Economic Development
- O47Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- P24Socialist Systems and Transitional Economies: National Income, Product, and Expenditure; Money; Inflation
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Login to CommentAs someone deeply entrenched in the field of economic studies, particularly the economic transformation of China, I can confidently attest to the groundbreaking insights offered by Xiaodong Zhu in his article "Understanding China's Growth: Past, Present, and Future," published in the Journal of Economic Perspectives in the Fall of 2012. My extensive background in economics and research methodology positions me well to elaborate on the key concepts presented in this seminal work.
Firstly, Zhu delves into the historical context, emphasizing China's unparalleled economic transformation. In 1978, China stood as one of the poorest nations globally, with a real per capita GDP merely one-fortieth of the U.S. level. The subsequent evolution saw an extraordinary annual growth rate exceeding 8 percent, propelling China's real per capita GDP to nearly one-fifth of the U.S. level, standing on par with Brazil. This meteoric rise occurred within a nation hosting over 20 percent of the world's population, solidifying China's status as the world's second-largest economy.
The crux of Zhu's analysis revolves around growth accounting, a method crucial for dissecting the sources of economic growth. He dissects the periods from 1952 to 1978 and since 1978, attributing growth to capital deepening, labor deepening, and productivity growth. Contrary to expectations tied to China's renowned rates of saving and investment, Zhu contends that productivity growth, not capital investment, has been the primary driver of China's rapid growth over the last three decades.
Furthermore, Zhu explores sector-level productivity growth and the reallocation of resources across sectors and firms. He unveils that institutional change and policy reforms, marked by a reduction in distortions and improved economic incentives, stand as the linchpin for the observed productivity growth. This meticulous analysis is encapsulated in Zhu's assertion that gradual and persistent institutional changes are the primary catalysts for China's remarkable economic trajectory.
The citation details Zhu's comprehensive work, providing a solid foundation for further exploration. The article is titled "Understanding China's Growth: Past, Present, and Future" and is published in the Journal of Economic Perspectives (Volume 26, Number 4, Fall 2012, pp. 103-24). The DOI is 10.1257/jep.26.4.103.
In terms of the Journal of Economic Perspectives article classifications, Zhu's work falls under the following:
- JEL Classification:
- E23 Macroeconomics: Production
- I31 General Welfare
- N15 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Asia including Middle East
- O11 Macroeconomic Analyses of Economic Development
- O47 Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
- P24 Socialist Systems and Transitional Economies: National Income, Product, and Expenditure; Money; Inflation
In conclusion, Xiaodong Zhu's article not only comprehensively analyzes China's economic growth but also challenges conventional wisdom regarding the drivers of this growth, making it an indispensable piece for anyone seeking a nuanced understanding of China's economic trajectory.
