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The Impact of Reform on Economic Growth in China: A Principal Component Analysis

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Author Info
Song, Ligang
Sheng, Yu
Abstract

The study decomposes the sources of Chinese growth by first making a distinction between technological progress and technical efficiency in the growth accounting framework, and then identifying a series of reform programmes, such as urbanization, structural change, privatization, liberalization, banking and fiscal system reforms as the key components in institutional innovation which facilitate the improvement of technical efficiency and through which economic growth. These components are then incorporated into the model specification, which is estimated based on a panel dataset by applying the principal component analysis (PCA) to eliminate the multicollinearity problem. The results show that urbanization, liberalization and structural change in the form of industrialization are the most important components in contributing to the improvement of technical efficiency and hence growth, highlighting the importance of government policies aimed at enhancing further urbanization, openness to trade and industrial structural adjustments to sustain the growth momentum in China. The study also found that the potential for further enhancing growth through technical efficiency in China is considerable, which can be realized by deepening state-owned enterprises (SOEs) restructuring, and banking and fiscal system reform.

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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Papers with number RP2008/12.

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Length: 24 pages
Date of creation: 2008
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Handle: RePEc:unu:wpaper:rp2008-12

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Keywords: institutional reform; growth; technical efficiency; principal component analysis; stochastic frontier analysis;

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  3. Tom Kompas & Tuong Nhu Che & R. Quentin Grafton, 2004. "Technical efficiency effects of input controls: evidence from Australia's banana prawn fishery," Applied Economics, Taylor and Francis Journals, vol. 36(15), pages 1631-1641, August. [Downloadable!] (restricted)
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  4. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  5. Chow, Gregory C, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 809-42, August. [Downloadable!] (restricted)
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  6. Coelli, T. J., 1992. "A computer program for frontier production function estimation : Frontier version 2.0," Economics Letters, Elsevier, vol. 39(1), pages 29-32, May. [Downloadable!] (restricted)
  7. Borensztein, Eduardo & Ostry, Jonathan D, 1996. "Accounting for China's Growth Performance," American Economic Review, American Economic Association, vol. 86(2), pages 224-28, May. [Downloadable!] (restricted)
  8. Coelli, Tim & Battese, George, 1996. "Identification Of Factors Which Influence The Technical Inefficiency Of Indian Farmers," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 40(02), August. [Downloadable!]
  9. Yanrui Wu, 2003. "Has Productivity Contributed to China's Growth?," Pacific Economic Review, Blackwell Publishing, vol. 8(1), pages 15-30, 01. [Downloadable!] (restricted)
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