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China's great expansion: The role of factor substitution and technical progress
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NSTL
Elsevier
We offer an assessment of China's macro-economy over 1978-2017, highlighting several neglected channels underlining its great expansion. On the basis of rigorous data work, we estimate the supply side of the post-Reform economy. This reveals an above unity value of the elasticity of capital-labor substitution and a time varying pattern of factor augmenting technical change. Consistent with some strands of the literature, our results suggest three waves of economic development reflecting state-to-private transitions: (I) 1978-1991 (II) 1992-2007, (III) after 2008. The middle wave is associated with improving efficiency of capital, which sharply reverses after the financial crisis consistent with renewed state control of the economy. We then demonstrate how, in addition to factor accumulation and technical progress, the aboveunity substitution elasticity has itself been a source of growth. As an illustration, we draw upon our estimated framework to rationalize China's high and rising savings rate.
Reform periodExtensive/intensive growthPolitical economyDe La Grandville hypothesisOptimal SavingsECONOMIC-GROWTHELASTICITYINNOVATIONREFORM
NSTL
Elsevier
