Is the Chinese Growth Miracle Built to Last?

Eswar Prasad ()

No 2995, IZA Discussion Papers from Institute for the Study of Labor (IZA)

Abstract: Is the Chinese growth miracle - a remarkably high growth rate sustained for over two decades - likely to persist or are the seeds of its eventual demise contained in the policies that have boosted growth? For all its presumed flaws, the particular approach to macroeconomic and structural policies that has been adopted by the Chinese government has helped to deliver high productivity and output growth, along with a reasonable degree of macroeconomic stability. In tandem with a benign international environment, this approach makes it unlikely that the economy will face a collapse in growth. But there comes a point when the policy distortions needed to maintain this approach could generate imbalances, impose potentially large welfare costs, and themselves become a source of instability. The traditional risks faced by emerging market economies, especially those related to having an open capital account, do not loom large in the case of China. In the process of securing protection against external risks, however, Chinese policymakers may have increased the risks of internal instability. There are a number of factors that could trigger unfavorable economic dynamics that, even if they don’t rise to the level of a crisis, could have serious adverse repercussions on growth and welfare. The flexibility and potency of macroeconomic tools to deal with such negative shocks is constrained by the panoply of policies that has supported growth so far.

Keywords: macroeconomic policies; exchange rate flexibility; capital account liberalization; financial sector reforms (search for similar items in EconPapers)
JEL-codes: F3 E5 O1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna, nep-dev, nep-mac and nep-tra
Date: 2007-08
View list of references View citations in EconPapers

Downloads: (external link)
ftp://repec.iza.org/RePEc/Discussionpaper/dp2995.pdf (application/pdf)

Related works:
Journal Article: Is the Chinese growth miracle built to last? (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:iza:izadps:dp2995

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute for the Study of Labor (IZA)
Address: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Contact information at EDIRC.
Series data maintained by Mark Fallak ().