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How much does investment drive economic growth in China?

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  • Qin, Duo
  • Cagas, Marie Anne
  • Quising, Pilipinas
  • He, Xin-Hua

Abstract

Investment-driven growth has long been regarded as a key development strategy in China. This paper investigates empirically the validity of this view. Post-1990 data analyses and macroeconometric model simulations show that market demand has become a regular force in driving investment since reforms, that non-demand-driven investment growth contributes to increasing capital-output ratio far more than output growth, that government investment exerts a pivotal role in amplifying investment cycles, albeit effective in promoting employment, and that delayed and rising consumption from current investment surge can help sustain the impact of growth even with constant-returns-to-scale in the long-run GDP.
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  • Qin, Duo & Cagas, Marie Anne & Quising, Pilipinas & He, Xin-Hua, 2006. "How much does investment drive economic growth in China?," Journal of Policy Modeling, Elsevier, vol. 28(7), pages 751-774, October.
  • Handle: RePEc:eee:jpolmo:v:28:y:2006:i:7:p:751-774
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    Cited by:

    1. Francisco, Ruth & Wan, Guanghua, 2009. "How is the Global Recession Impacting on Poverty and Social Spending? An ex ante assessment methodology with applications to developing Asia," MPRA Paper 18885, University Library of Munich, Germany.
    2. Tomohara, Akinori & Takii, Sadayuki, 2011. "Does globalization benefit developing countries? Effects of FDI on local wages," Journal of Policy Modeling, Elsevier, vol. 33(3), pages 511-521, May.
    3. Nasri Harb, 2009. "Oil Exports, Non-Oil GDP, and Investment in the GCC Countries," Review of Development Economics, Wiley Blackwell, vol. 13(4), pages 695-708, November.
    4. Mah, Jai S., 2010. "Foreign direct investment inflows and economic growth of China," Journal of Policy Modeling, Elsevier, vol. 32(1), pages 155-158, January.
    5. Abdul Karim, Zulkefly & Abdul Karim, Bakri & Ahmad, Riayati, 2010. "Fixed investment, household consumption, and economic growth : a structural vector error correction model (SVECM) study of Malaysia," MPRA Paper 27146, University Library of Munich, Germany.
    6. Yilmaz Akyuz, 2006. "From Liberalization To Investment and Jobs: Lost in Translation," Working Papers 2006/3, Turkish Economic Association.
    7. Il Houng Lee & Murtaza H Syed & Liu Xueyan, 2013. "China’s Path to Consumer-Based Growth; Reorienting Investment and Enhancing Efficiency," IMF Working Papers 13/83, International Monetary Fund.
    8. Germaschewski, Yin, 2013. "Reserve financing and government infrastructure investment: An application to China," Journal of Policy Modeling, Elsevier, vol. 35(6), pages 992-1013.
    9. Tian, Xin & Chang, Miao & Lin, Chen & Tanikawa, Hiroki, 2014. "China’s carbon footprint: A regional perspective on the effect of transitions in consumption and production patterns," Applied Energy, Elsevier, vol. 123(C), pages 19-28.
    10. Sethi, Amarjit Singh & Kaur, Supreet, 2013. "Physical Capital Formation And Income Relationships: A Temporal Analysis For Punjab And Haryana," Journal of Regional Development and Planning, JRDP, vol. 2(2), pages 109-130.
    11. Maria Jesus Herrerias & Vicente Orts, 2011. "The driving forces behind China’s growth," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(1), pages 79-124, January.
    12. Xing, Yuqing & Pradhananga, Manisha, 2013. "How Important are Exports and Foreign Direct Investment for Economic Growth in the People’s Republic of China?," ADBI Working Papers 427, Asian Development Bank Institute.
    13. Akyüz, Yilmaz., 2006. "From liberalization to investment and jobs : lost in translation," ILO Working Papers 993913203402676, International Labour Organization.
    14. Qin, Duo & Song, Haiyan, 2009. "Sources of investment inefficiency: The case of fixed-asset investment in China," Journal of Development Economics, Elsevier, vol. 90(1), pages 94-105, September.
    15. Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & He, Xinhua & Liu, Rui & Liu, Shiguo & Magtibay-Ramos, Nedelyn & Quising, Pilipinas, 2007. "A macroeconometric model of the Chinese economy," Economic Modelling, Elsevier, vol. 24(5), pages 814-822, September.
    16. Fu, Feng & Liu, Hongtao & Polenske, Karen R. & Li, Zheng, 2013. "Measuring the energy consumption of China’s domestic investment from 1992 to 2007," Applied Energy, Elsevier, vol. 102(C), pages 1267-1274.
    17. Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & He, Xinhua & Liu, Rui & Liu, Shiguo, 2009. "Effects of income inequality on China's economic growth," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 69-86.
    18. Zhao, Xingrong & Zhang, Xi & Shao, Shuai, 2016. "Decoupling CO2 emissions and industrial growth in China over 1993–2013: The role of investment," Energy Economics, Elsevier, vol. 60(C), pages 275-292.
    19. Abdelhafidh, Samir, 2013. "Potential financing sources of investment and economic growth in North African countries: A causality analysis," Journal of Policy Modeling, Elsevier, vol. 35(1), pages 150-169.
    20. Herrerias, M.J. & Orts, Vicente, 2013. "Capital goods imports and long-run growth: Is the Chinese experience relevant to developing countries?," Journal of Policy Modeling, Elsevier, vol. 35(5), pages 781-797.
    21. Jiranyakul, Komain, 2014. "Capital Formation in Thailand: Its Importance and Determinants," MPRA Paper 58442, University Library of Munich, Germany.
    22. Herrerias, M.J. & Orts, Vicente, 2011. "Imports and growth in China," Economic Modelling, Elsevier, vol. 28(6), pages 2811-2819.

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • R34 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Input Demand Analysis
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • P41 - Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform

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