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

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  • Song, Ligang
  • Sheng, Yu
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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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File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2008/rp2008-12.pdf
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Bibliographic Info

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

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Length: 24 pages
Date of creation: 2008
Date of revision:
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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  1. Chow, G.C., 1990. "Capital Formation And Economic Growth In China," Papers 356, Princeton, Department of Economics - Econometric Research Program.
  2. 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.
  3. Zuliu F. Hu & Mohsin S. Khan, 1997. "Why Is China Growing So Fast?," IMF Staff Papers, Palgrave Macmillan, vol. 44(1), pages 103-131, March.
  4. Fleisher, Belton M. & Chen, Jian, 1997. "The Coast-Noncoast Income Gap, Productivity, and Regional Economic Policy in China," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 220-236, October.
  5. K.P. Kalirajan & M.B. Obwona & S. Zhao, 1996. "A Decomposition of Total Factor Productivity Growth: The Case of Chinese Agricultural Growth before and after Reforms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 331-338.
  6. Yan Wang & Yudong Yao, 2001. "Sources of China's economic growth, 1952-99 : incorporating human capital accumulation," Policy Research Working Paper Series 2650, The World Bank.
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Cited by:
  1. Yu Sheng & Xunpeng Shi, . "Energy Market Integration and Economic Convergence: Implications for East Asia," Chapters, Economic Research Institute for ASEAN and East Asia (ERIA).

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