Is China’s economic growth profit-led or wage-led? A re-estimation incorporating investment nonlinearity, sectoral change, and regional disparity

Dun Liu

Journal of Post Keynesian Economics, 2021, vol. 44, issue 1, 143-172

Abstract: This paper estimates China’s growth regime based on Bhaduri-Marglin model, using the provincial panel data from 1978 to 2017. It contributes to related empirical studies in that: (1) it tests that the responsiveness of investment growth to labor share increase is dependent on the existed labor share level; (2) it uses the labor share changes adjusted for the sectoral-change effects as a more appropriate proxy for distributive changes; and (3) it manifests the necessity of recognizing regional heterogeneity in parameters for a large economy. The results show that at 2017 level, whereas the eastern area is weakly profit-led, the inland area is strongly wage-led, and an even increase of labor share in all areas lead to more rapid growth of the whole economy. At this stage, China needs pro-labor institutional reforms to restore rapid, balanced, and sustainable growth.

Date: 2021
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DOI: 10.1080/01603477.2020.1848436

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