Week 5: The Growth of China Flashcards
(26 cards)
What are the 3 supply-side reforms that have promoted growth in China?
-Labour market reform
-Goods and services reform
-Financial market reform
How have labour markets been reformed?
-Migration to Special Economic Zones and a switch from agriculture to manufacturing
-Technological development and development of human capital
How has human capital been developed?
-Funding for universities
-Support for R&D
How have goods and services been reformed?
-Enhanced competitiveness (privatisation)
-Market structure alteration (removing price controls or joining WTO)
-Innovation (patents)
What 3 factors are highlighted in the Solow growth model?
-Labour transfer
-Increase in physical capital
-Rise in productivity
What increases in these Solow model due to a rise in FDI?
g -> g*
Speed of transition is higher
sf(k) -> sf(k) + FDI
How does migration affect the Solow model?
Migration increases the growth rate of labour efficiency- break-even investment per worker pivots left.
Productivity of labour rises
What literature compares total factor productivity and capital accumulation
Brandt & Zhu (2010)
What does Brandt and Zhu (2010) find?
-Between 1978-2008, total factor productivity in the non-state sector is the key reason for China’s growth rate
-A high level of investment is also important. Although, much of it is in the lower productivity state sector so is less effective
-Capital accumulation is more important in the latter period (1998-2007) as the performance of the state sector was improved
What literature has a good overview of growth processes in China?
Wei, Xie & Zhang (2017)
What does Wei, Xie & Zhang (2017) find?
-Investment in physcial capital is important for China’s growth- accounting for 67.9% of growth
-The government stimulus package has been a key driver of growth
-Growth of TFP accounted for 20% of growth per 2008
What 5 methods will sustain future growth in China?
-Innovation
-Pivot to higher value-added sectors
-Rebalance economy towards consumer
-Entrepreneurship as a source of development
-Decentralisation
How can China avoid the ‘middle income trap’?
Education
Financial Sector reform
Supporting High tech sectors
Global cooperation in trade
Rule of law
Copyright protection
What is the middle income trap?
When a nation struggles to achieve high-income status due to difficulty transitioning from labour-intensive industries
What % of GDP does R&D account for?
From 0.7% to 2%
What % of patents are accepted?
40-50%
What % of urban residents have a high school education?
44%
What does China’s high level of savings generate?
A large trade surplus
What is the equilibrium real exchange rate set to?
NX=S + (T-G)-I
What does setting the equilibrium real exchange rate help control?
-Level of household saving
-Fiscal surplus
-Encourage FDI
Wha type of fiscal policy does China have?
Expansionary fiscal policy
What impact does a lack of financial sector developments and demand from foreign investors have on govt bonds?
They can be readily sold- lowering borrowing costs
What are the % of GDP of expenditure and tax revenue in local govt?
13% revenue
16% expenditure
How are local governments financed?
They receive a fraction of VAT and corporate profits tax collected in their jurisdiction.
Tax collected from personal income and businesses.
