Modeling Technological Progress and Investment in China: Some Caveats

Levy Economics Institute, Working Papers Series No. 643

28 Pages Posted: 15 Dec 2010

See all articles by Jesus Felipe

Jesus Felipe

De La Salle University

John McCombie

University of Cambridge - Department of Land Economy

Date Written: December 14, 2010

Abstract

Since the early 1990s, the number of papers estimating econometric models and using other quantitative techniques to try to understand different aspects of the Chinese economy has mushroomed. A common feature of some of these studies is the use of neoclassical theory as the underpinning for the empirical implementations. It is often assumed that factor markets are competitive, that firms are profit maximizers, and that these firms respond to the same incentives that firms in market economies do. Many researchers find that the Chinese economy can be well explained using the tools of neoclassical theory. In this paper, we (1) review two examples of estimation of the rate of technical progress, and (2) discuss one attempt at modeling investment. We identify their shortcomings and the problems with the alleged policy implications derived. We show that econometric estimation of neoclassical models may result in apparently sensible results for misinformed reasons. We conclude that modeling the Chinese economy requires a deeper understanding of its inner workings as both a transitional and a developing economy.

Keywords: China, Identity, Investment, Neoclassical Model, Total Factor Productivity Growth

JEL Classification: C20, E22, E62, O23, P41

Suggested Citation

Felipe, Jesus and McCombie, John S. L., Modeling Technological Progress and Investment in China: Some Caveats (December 14, 2010). Levy Economics Institute, Working Papers Series No. 643, Available at SSRN: https://ssrn.com/abstract=1725489 or http://dx.doi.org/10.2139/ssrn.1725489

Jesus Felipe (Contact Author)

De La Salle University ( email )

2401 Taft Avenue
Manila, NCR 1004
Philippines

John S. L. McCombie

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
45
Abstract Views
841
PlumX Metrics