Chapter 22 Section 2 Sources of Economic Growth
In the book "China's Long-term Economic Performance (AD 960-2030)", Angus Maddison calculated that the growth rate of the Chinese economy during the period from 1820 to 1952 was 0.6%.According to the data of the National Bureau of Statistics, I concluded that the average annual growth rate of China's GDP was 6.66% during the period from 1952 to 1978; from 1979 to 2008, China's economic growth was outstanding, with an average annual GDP growth rate of 9.89%, compared with Japan's war The average GDP growth rate of the post-growth miracle and the "East Asian Miracle" created by the Four Asian Tigers is still about 2% higher.On the whole, from 1952 to 2008, China’s average annual GDP growth rate was 8.36%, which is very different from the 0.6% performance of the Chinese economy from 1820 to 1952.
Due to the rapid growth, the proportion of China's total economic output in the world is constantly rising. In 2000, China's total GDP surpassed that of Italy; in 2004, France; in 2005, the United Kingdom; in 2007, Germany. China's total GDP currently ranks third in the world after the United States and Japan.China's growth from an insignificant economy to the third largest in the world came too fast and too suddenly.China's re-emergence can only be compared with the meteoric rise of the United States of global significance in the late 19th century.China's per capita income has also risen substantially.Using Sachs' "ladder theory" can well explain the changes in Chinese people's living standards: from 1 AD to 1948, the Chinese people lived on the first ladder, that is, the stage of poverty; in the first 30 years after the founding of the People's Republic of China, China The people have climbed the second ladder, which is the low-income stage; in the 30 years of reform and opening up, the Chinese people have touched the third ladder, which is the middle-income stage; in the next 40 years, the Chinese people will climb the fourth ladder, which is wealthy stage.
However, whether China's economy can maintain such rapid growth for a long time has become an increasingly widespread concern both at home and abroad.Jonathan Anderson, Chief Economist for the Asia-Pacific region of UBS, believes in the book "Out of the Myth" that the fundamental driving force of the "Asian growth model" comes from high savings rates. In his view, China is not as many people predicted. It will be a "brand new economic species" as it is said, but it is a reprint of the "Asian growth model". Although China is a newly rising Asian dragon, it will develop along the established model of East Asia, but it is not unprecedented in history. The phenomenon.Anderson's views on China's economy are quite representative internationally.
What factors have led to the remarkable economic development achievements of New China in the past 60 years?Is China's economy an "East Asian model" or a "new economic species"?To answer this question, we must figure out what was the driving force behind China's economic growth in the past 60 years.
Figure 3-1 can provide an intuitive and quantitative description of the economic development in the 60 years since the founding of the People's Republic of China.China's GDP grew substantially from 1952 to 1978, but then accelerated suddenly from 1979 to 2007 and began to grow "explosively".If we go back to 1952, I am afraid no one would have imagined that the wealth created by the Chinese economy has increased by nearly 80 times in 55 years.
World Bank economist Wang Yan and I introduced human capital into China's economic growth accounting for the first time in 2003.In the field of economics, there is no unified measure of human capital.According to the method first proposed by Wang Yan and I at the World Bank in 2003, we used the sum of the years of education of the economically active population as a measure of human capital to conduct an empirical analysis of the growth sources of the Chinese economy from 1952 to 2007.According to the economic growth accounting method, economic growth is decomposed into the contribution of physical capital input, labor input contribution, human capital input contribution and total factor productivity (Total Factor Productivity, TFP) contribution.Then, after deducting the input contribution of physical capital, human capital and labor input, the remaining part is the total factor productivity.If the growth of physical capital is divided by the growth of labor force, the ratio of the two can be regarded as the deepening of physical capital.Essentially, there are three ways of economic growth: the first is the deepening of physical capital; the second is to rely on the accumulation of human capital; the third is to promote the growth of total factor productivity.
The economic growth accounting method shows certain credibility in terms of expectations.From the 1960s to the outbreak of the Asian financial crisis in 1997, the economies of the four Asian tigers have maintained rapid growth for nearly 37 years. This rapid growth phenomenon is considered the "East Asian Miracle". In 1994, Yang, a professor at the University of Chicago, believed that the so-called "East Asian Miracle" was nothing more than a high-input growth, not a "miracle". From 1966 to 1990, the per capita income of the four Asian tigers increased by 6% to 7%, and the main source of rapid growth was the accumulation of labor and capital factors.During this period, the labor force participation rate, per capita education level, and investment rate of the four Asian Tigers all increased significantly.After controlling factor inputs, the total factor productivity growth of the four Asian tigers is not substantially different from that of OECD countries and Latin American countries in the same period.This myth bears a striking resemblance to the mythical economic growth of the Soviet Union. In 1994, Krugman used the Soviet Union as an analogy. The four Asian tigers had no obvious technological innovations, predicting that the so-called "East Asian miracle" lacked sustainability. In 1997, the outbreak of the Asian financial crisis confirmed Krugman's statement to a certain extent.
Next, we use an empirical approach to examine China's growth model.As shown in Table 3-1, China's economic growth has always been mainly driven by strong domestic investment demand, and the increase in physical capital has made the most important contribution to economic growth, reaching 44% in the planned economy period and as high as 80% in the market economy period.The contribution of labor force growth to economic growth was higher before the era of planned economy, reaching 12.46%, but since 1978, it has slightly decreased to 10.73%.
The accumulation of physical capital in China is very dramatic. The ratio of the domestic savings rate to GDP has increased from less than 10% before the founding of the People's Republic of China to more than 30%, a rapid increase.why?If you look at the situation in the United States and Europe, even when their economies are growing rapidly, the savings rate is no more than 20%.My answer is that the establishment of the People's Republic of China has completely freed China from the long-term balance of payments imbalance and debt crisis. The depressive effect of the debt crisis has disappeared, and China's savings rate has risen.In the second 30 years after the founding of the People's Republic of China, China's savings rate was still very high, about 40%.A high savings rate maintains a high investment rate. Through a banking system, a large number of investment sources can be settled domestically without borrowing foreign debts.The savings rate of Latin American countries is generally lower than that of East Asian countries, and they tend to borrow foreign debt when investment demand is high.Once the international capital market interest rate rises sharply, it will face a risk of debt sustainability.But this does not mean that a high savings rate is good. Once domestic investment opportunities are reduced, there will be excess liquidity and the risk of high inflation and asset bubbles.
Figure 3-2 depicts the extent of physical capital deepening, which is equally astounding when compared to real GDP.From the perspective of material capital deepening, capital is the most important factor for the rapid development of China's economy, and its contribution to GDP growth is the highest.As can be seen from Figure 3-2, the deepening of material capital in China is unprecedented. In a country with a large agricultural economy, a relatively complete industrial system has been quickly established.When New China was first established, agriculture accounted for a large proportion, while industry accounted for only about 10% of the national economy. After 1949, China proceeded in accordance with the idea of "three years of preparation and ten years of construction". From 1950 to 1952, the first batch of energy projects were built, such as coal mines in Hegang, Liaoyuan, and Fuxin, and power plants in Fushun and Xiaofengman.
In the first "Five-Year Plan" (1953-1957), focusing on 156 projects aided by the Soviet Union, a number of basic industrial projects such as metallurgy, automobiles, coal, petroleum, and electric power were completed.For example, in 1953, Anshan Iron and Steel Company started production. In 1956, Changchun Automobile Factory was built.Since 1972, using limited foreign exchange, it has boldly introduced 26 complete sets of equipment and stand-alone import projects from Japan, Germany, the United States, the Netherlands, France, Italy, Switzerland and other countries, including the import of complete sets of equipment from Baosteel.
At the same time, the comparison between the two periods is also very interesting.The rate of physical capital deepening in the first 30 years is about 3.60%, and the growth rate in the second 30 years is about 8.80%.Why is there such a big gap between before and after?An important reason is that during the transition to a market economy, the marginal rate of return on capital was much higher than that in the period of the planned economy, so the domestic savings rate gradually rose from 30% before 1979 to over 40% in 2008.Another reason is that China has opened up to the outside world and successfully introduced foreign capital, which has become one of the important forces driving the deepening of China's physical capital.
As shown in Figure 3-3, China's human capital has grown rapidly.Based on the number of graduates from various schools over the years, I calculated the number of educated persons of each type.Before the founding of the People's Republic of China, the average number of years of education received by the productive population aged 15 to 64 was less than one year. In 1978, the average number of years of education in China was close to four years.In other words, China as a whole has stepped out of the state of illiteracy and reached the level of almost graduating from primary school.In the first 30 years after the founding of the People's Republic of China, the education level of the whole nation was greatly improved, which cannot but be said to be a huge achievement.
In the second 30 years after the founding of the People's Republic of China, the per capita years of education of the entire productive population increased by 2.6 years, increasing to 6.6 years in 2008, equivalent to the level of the second year of junior high school.In terms of human capital structure, the proportion of people with education level below primary school has dropped significantly, while the proportion of people with education level above junior high school has increased significantly.
According to this result, from 1952 to 2008, the average growth rate of human capital stock was 3.56%.It can be seen from Table 3-1 that the deepening of human capital increased greatly during the planned economy period, as high as 26.24%, and decreased to about 11% during the transition period to the market economy.The main reason is that before 1949, China’s human capital base was very low. In 1952, the per capita education years were about 0.9 years. Since the founding of New China, the penetration rate of primary and secondary education has risen rapidly. After reaching a certain level, the growth rate will inevitably slow down. slow.
The Chinese government realized the importance of human capital investment as economic growth, and implemented the Education for All movement since 1949. After a few years of hard work, education has realized the transformation from elite education to popular education.However, the ten-year turmoil of the "Cultural Revolution" brought huge losses to the education work and delayed time. In 1983, Deng Xiaoping clearly stated: "Education should be oriented toward modernization, the world, and the future." In 1985, the central government issued the "Decision on Reform of the Educational System." Talents, excellent talents”, put forward the goal of popularizing nine-year compulsory education, and the funds for education should be “covered” by the state and society.Unfortunately, due to the uneven financial resources due to different levels of economic development, many impoverished areas do not have enough funds to support compulsory education, especially in many rural areas. After 2001, the Chinese government gradually realized this problem and took measures to ensure the implementation of compulsory education in rural areas.By 2005, the national population coverage rate of universal nine-year compulsory education and the gross enrollment rate of junior high schools will both reach over 95%, achieving the goal of universal nine-year compulsory education. In 1998, China decided to greatly expand the enrollment scale of higher education, and quickly realized the popularization of higher education.
In 1989, Professor Perkins of Harvard University, who has studied the Chinese economy for a long time, pointed out that the key to China's prosperity lies in the improvement of total factor productivity.If there is no improvement in total factor productivity, continuous increase in factor input in an economic sector will eventually lead to diminishing marginal productivity of input, and the rate of return on investment will become lower and lower, which reduces people's enthusiasm for accumulating capital.As shown in Table 3-1, from 1952 to 1978, total factor productivity growth was -0.30% overall.Figure 3-4 shows that the total factor productivity index of the Chinese economy dropped from 100 in 1952 to around 80 in the 1970s after several large fluctuations.
China's total factor productivity can be divided into three stages: the first stage is a stage of rapid improvement, mainly during the "First Five-Year Plan" period.Through the construction of a number of large projects with advanced technology, the technical level has been greatly improved.The second stage is the stage of large shocks, from 1958 to 1969.Fixed asset investment accounts for more than 60% of the country's financial resources, and the proportion of investment and consumption is seriously out of balance. Coupled with natural disasters, and the neglect of agricultural production by large-scale steelmaking, agricultural production has been greatly reduced, and high industrial investment cannot be sustained. The post-growth setback caused a sharp shock to total factor productivity.The third stage is the stagnation stage. From 1970 to 1978, the total factor productivity fell into a predicament of stagnation. Capital was over-accumulated, investment income gradually disappeared, and the entire economy gradually lost its vitality.It can be said that if the reform of the economic system oriented by the market economy cannot be launched in 1978, the total factor productivity will continue to decline or stagnate, the economy will become more rigid, and the later the reform, the more difficult it will be. On December 13, 1978, Deng Xiaoping pointed out in his historic speech "Emancipate the Mind, Seek the Truth from Facts, and Look Ahead in Unity": "If reforms are not carried out now, our modernization and socialism will be destroyed. buried.” Through empirical research, the fact that total factor productivity continued to decline in the 1970s shows that Deng Xiaoping’s judgment was accurate and timely.
As shown in Table 3-1, in the second 30 years after the founding of the People's Republic of China, the growth rate of total factor productivity was 1.48%, indicating that 17.7% of China's economic growth came from economic system reform, or reform is one of the main driving forces of economic growth.As shown in Figure 3-4, total factor productivity basically increased steadily from 1979 to 2007. After 1978, the reform of the economic system promoted the growth of China's total factor productivity, and the higher total factor growth rate and GDP growth in turn accelerated the formation of capital.Compared with the negative total factor productivity growth during the planned economy period, the total factor productivity growth of the Chinese economy turned positive during the period from 1979 to 2007, which proves that market-oriented economic reforms have added vitality to the Chinese economy.At the same time, we can partially deny Anderson's views.Like the "East Asian Model", China's economy mainly relies on high investment rates, but the total factor productivity accounts for a considerable proportion. China's growth model is different from the "East Asian Model".
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