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The Economy of People’s Republic of China from 1953

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  • Cheremukhin, Anton
  • Golosov, Mikhail
  • Guriev, Sergei
  • Tsyvinski, Aleh

Abstract

This paper studies growth and structural transformation of the Chinese economy from 1953 to 2012 through a lens of a two-sector growth model. The main goal of the paper is to provide a systematic analysis of both the pre-1978 reform and post-1978 reform periods in a unified framework. First, we construct a dataset that allows the application of the neoclassical model and computation of wedges, their components, and rates of TFP growth. Second, we determine the key quantitative factors behind growth and structural transformation. The changes in the intersectoral labor wedge play the dominant role in accounting for the change in the share of labor force in agriculture. TFP growth and changes in the intersectoral wedges are the two most significant factors contributing to GDP growth. Further decomposing the effects of reduction in wedges, we find that two components: the production component (the gap between the ratio of the marginal products of labor and relative wages) and the consumption component (the gap between the marginal rate of substitution and the relative prices) play a particularly large role. Third, we use the pre-reform period as a key benchmark to measure the success of the post-1978 reforms. We show that reforms yielded a significant growth and structural transformation differential. GDP growth is 4.2 percentage points higher and the share of the labor force in agriculture is 23.9 percentage points lower compared with the continuation of the pre-1978 policies. We provide extensive historical evidence for the reforms that are consistent with the evolution of the components of the wedges. The decrease in the production component of the intersectoral wedge is consistent with increased competition and demonopolization of the economy. The decrease in the consumption component of the wedge is consistent with the price and housing reforms. Finally, we project the path of the Chinese economy until 2050 and also calculate a lower bound on future growth by projecting pre-reform trends.

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  • Cheremukhin, Anton & Golosov, Mikhail & Guriev, Sergei & Tsyvinski, Aleh, 2015. "The Economy of People’s Republic of China from 1953," CEPR Discussion Papers 10764, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:10764
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    2. Cai, Wenbiao, 2015. "Structural change accounting with labor market distortions," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 54-64.
    3. Ricardo Reyes-Heroles, 2018. "Globalization and Structural Change in the United States: A Quantitative Assessment," 2018 Meeting Papers 1027, Society for Economic Dynamics.
    4. Lein-Lein Chen & John Devereux, 2017. "The Iron Rice Bowl: Chinese Living Standards 1952–1978," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 261-310, September.
    5. Leonard Kukić, 2018. "Socialist growth revisited: insights from Yugoslavia," European Review of Economic History, Oxford University Press, vol. 22(4), pages 403-429.
    6. Loren Brandt & Gueorgui Kambourov & Kjetil Storesletten, 2018. "Barriers to Entry and Regional Economic Growth in China," Working Papers tecipa-622, University of Toronto, Department of Economics.
    7. Simon Alder & Lin Shao & Fabrizio Zilibotti, 2016. "Economic reforms and industrial policy in a panel of Chinese cities," Journal of Economic Growth, Springer, vol. 21(4), pages 305-349, December.
    8. Enrica Di Stefano & Daniela Marconi, 2016. "Structural transformation and allocation efficiency in China and India," Temi di discussione (Economic working papers) 1093, Bank of Italy, Economic Research and International Relations Area.
    9. Grzegorz W. Kolodko, 2018. "Socialism or capitalism? Tertium Datur," Economy and Forecasting, Valeriy Heyets, issue 1, pages 7-36.
    10. José R. Sánchez-Fung, 2016. "Reviewing Trade Policy in China During the Transition to Balanced Economic Growth," The World Economy, Wiley Blackwell, vol. 39(12), pages 1934-1946, December.
    11. Zhao, Bo, 2020. "COVID-19 pandemic, health risks, and economic consequences: Evidence from China," China Economic Review, Elsevier, vol. 64(C).
    12. Kukić, Leonard, 2017. "Regional development under socialism: evidence from Yugoslavia," Economic History Working Papers 85078, London School of Economics and Political Science, Department of Economic History.
    13. Roy van der Weide & Ambar Narayan, 2019. "China and the United States: Different economic models but similarly low levels of socioeconomic mobility," WIDER Working Paper Series wp-2019-121, World Institute for Development Economic Research (UNU-WIDER).
    14. Fengliang Liu & Xin Yi & Ze Yu, 2017. "Structural change in China: the role of factor market distortions," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 15(2), pages 185-204, April.
    15. Jeannine Bailliu & Mark Kruger & Argyn Toktamyssov & Wheaton Welbourn, 2016. "How Fast Can China Grow? The Middle Kingdom’s Prospects to 2030," Staff Working Papers 16-15, Bank of Canada.
    16. Hansen, G.D. & Ohanian, L.E., 2016. "Neoclassical Models in Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2043-2130, Elsevier.

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    More about this item

    Keywords

    Chinese economy; structural transformation;

    JEL classification:

    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N55 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Asia including Middle East
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • P2 - Economic Systems - - Socialist Systems and Transition Economies

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