China's Economic Growth and Convergence

20 Pages Posted: 13 Nov 2017

Date Written: November 2017

Abstract

Using cross‐country panel data, this study identifies and discusses major factors contributing to China's strong growth in the past four decades. China's low initial per capita income relative to its own long‐run potential, combined with sound policy factors including a high investment rate, strong human capital, high trade openness and improved institutions, enabled the economy to converge with advanced economies in terms of income level. The shift‐share analysis with industry‐level data shows that strong labour productivity growth in the manufacturing sector largely contributed to China's overall labour productivity growth. Although labour reallocation from agriculture to the services sector made a positive contribution to aggregate labour productivity growth, labour productivity growth in the services sector itself was negative over the 1980–2010 period. China's average potential GDP growth is predicted to decline significantly in the coming decade, to 5%–6% and fall further to 3%–4%—due to the convergence effect and structural problems—unless China substantially upgrades its institutions and policy factors and improves productivity, particularly in its services sector.

Keywords: China, convergence, economic growth, productivity, structural change

Suggested Citation

Lee, Jong-Wha, China's Economic Growth and Convergence (November 2017). The World Economy, Vol. 40, Issue 11, pp. 2455-2474, 2017. Available at SSRN: https://ssrn.com/abstract=3069221 or http://dx.doi.org/10.1111/twec.12554

Jong-Wha Lee (Contact Author)

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

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