A Stylized Model of China's Growth Since 1978

Abstract

This paper develops a stylized multi-sector growth model of China’s economy. We choose a neoclassical modeling approach and focus on the reform process under Deng Xiaoping as China’s main growth driver since 1978. Following the literature, we distinguish between three major reform periods, namely the agricultural (1978-1984), the industrial (1984-1992) and the foreign-trade reform period (1992-present). Reflecting the neoclassical view, our model explains China’s growth process since 1978 by a sequence of transitory growth phases generated by the reforms. We discuss our model’s implications for China’s future growth and the middle-income trap as well as growth stimulating policies in China.

Keywords: multi-sector growth modelling, neoclassical growth theory, structural change, China, middle-income trap

JEL Classification: O10, O11, O40, O41