Why Has China Succeeded - And Why it Will Continue to Do So
Levy Economics Institute, Working Papers Series No. 611
48 Pages Posted: 21 Aug 2010
Date Written: August 19, 2010
The key factor underlying China’s fast development during the last 50 years is its ability to master and accumulate new and more complex capabilities, reflected in the increase in diversification and sophistication of its export basket. This accumulation was policy induced and not the result of the market, and began before 1979.
Despite its many policy mistakes, if China had not proceeded this way, in all likelihood it would be a much poorer country today. During the last 50 years, China has acquired revealed comparative advantage in the export of both labor-intensive products (following its factor abundance) and sophisticated products, although the latter does not indicate that there was leapfrogging. Analysis of China’s current export opportunity set indicates that it is exceptionally well positioned (especially taking into account its income per capita) to continue learning and gaining revealed comparative advantage in the export of more sophisticated products. Given adequate policies, carefully thought-out and implemented reforms, and skillful management of constraints and risks, China has the potential to continue thriving. This does not mean, however, that high growth will continue indefinitely.
Keywords: China, Capabilities, Diversification, Export-led Growth, Leapfrogging, Open Forest, Product Space, Sophistication
JEL Classification: O20, O25, O53
Suggested Citation: Suggested Citation