China’s great expansion: The role of factor substitution and technical progress

Ana-Simona Manu, Peter McAdam () and Alpo Willman

European Economic Review, 2022, vol. 141, issue C

Abstract: 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 above-unity 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.

Keywords: Reform period; Extensive/intensive growth; Political economy; De La Grandville hypothesis; Optimal Savings (search for similar items in EconPapers)
JEL-codes: C5 D24 E13 O11 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:141:y:2022:i:c:s0014292121002191

DOI: 10.1016/j.euroecorev.2021.103911

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