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Modeling Technological Progress and Investment in China: Some Caveats


  • Jesus Felipe
  • John McCombie


Since the early 1990s, the number of papers estimating econometric models and using other quantitative techniques to try to understand different aspects of the Chinese economy has mushroomed. A common feature of some of these studies is the use of neoclassical theory as the underpinning for the empirical implementations. It is often assumed that factor markets are competitive, that firms are profit maximizers, and that these firms respond to the same incentives that firms in market economies do. Many researchers find that the Chinese economy can be well explained using the tools of neoclassical theory. In this paper, we (1) review two examples of estimation of the rate of technical progress, and (2) discuss one attempt at modeling investment. We identify their shortcomings and the problems with the alleged policy implications derived. We show that econometric estimation of neoclassical models may result in apparently sensible results for misinformed reasons. We conclude that modeling the Chinese economy requires a deeper understanding of its inner workings as both a transitional and a developing economy.

Suggested Citation

  • Jesus Felipe & John McCombie, 2010. "Modeling Technological Progress and Investment in China: Some Caveats," Economics Working Paper Archive wp_643, Levy Economics Institute.
  • Handle: RePEc:lev:wrkpap:wp_643

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    References listed on IDEAS

    1. Felipe, Jesus & McCombie, J. S. L., 1999. "Wan's "New Approach" to Technical Change: A Comment," Journal of Comparative Economics, Elsevier, vol. 27(2), pages 355-363, June.
    2. Felipe, Jesus & Kumar, Utsav & Abdon, Arnelyn & Bacate, Marife, 2012. "Product complexity and economic development," Structural Change and Economic Dynamics, Elsevier, vol. 23(1), pages 36-68.
    3. Holz, Carsten A., 2002. "Long live China's state-owned enterprises: deflating the myth of poor financial performance," Journal of Asian Economics, Elsevier, vol. 13(4), pages 493-529.
    4. Sun, Laixiang, 1998. "Estimating Investment Functions Based on Cointegration: The Case of China," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 175-191, March.
    5. Gregory C. Chow, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 809-842.
    6. Song, Haiyan & Liu, Zinan & Jiang, Ping, 2001. "Analysing the determinants of China's aggregate investment in the reform period," China Economic Review, Elsevier, vol. 12(2-3), pages 227-242.
    7. Wan, Guang H., 1995. "Technical Change in Chinese State Industry: A New Approach," Journal of Comparative Economics, Elsevier, vol. 21(3), pages 308-325, December.
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    1. repec:wsi:jicepx:v:02:y:2011:i:02:n:s1793993311000324 is not listed on IDEAS

    More about this item


    China; Identity; Investment; Neoclassical Model; Total Factor Productivity Growth;

    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • 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
    • 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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