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Is the People’s Republic of China’s Current Slowdown a Cyclical Downturn or a Long-term Trend? A Productivity-Based Analysis

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  • Bai, Chong–En

    (Asian Development Bank Institute)

  • Zhang, Qiong

    (Asian Development Bank Institute)

Abstract

Whether the People’s Republic of China’s (PRC) economic slowdown since the 2008 financial crisis is a cyclical downturn or a long-run trend has important policy implications. Based on provincial panel data, we identify the determinants of productivity and uses counter-factual analysis to decompose the causes of the PRC’s post-crisis slowdown. We find that economic openness has a significantly positive impact on the technical efficiency of production, whereas the income level has a significantly negative effect. Second, a significantly negative correlation is observed between the stock of inventory and productivity, while the opposite is observed between employment involvement rate and productivity. Third, government size and investment rates both have significantly negative effects on productivity. Lastly, the diminishing late-mover advantage and the growth in investment rate are both major contributors to the current decline in the PRC’s productivity. Although the stimulus-induced investment surge has effectively offset the negative effects of the crisis on the PRC’s growth, it is not conducive to the growth of productivity and consumption. The current economic slowdown does not seem to be a cyclical downturn. Indeed, further reforms are needed to stabilize the PRC’s growth.

Suggested Citation

  • Bai, Chong–En & Zhang, Qiong, 2017. "Is the People’s Republic of China’s Current Slowdown a Cyclical Downturn or a Long-term Trend? A Productivity-Based Analysis," ADBI Working Papers 635, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0635
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. China: Deleveraging is Hard to Do
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2017-07-10 17:37:23

    More about this item

    Keywords

    productivity; technical efficiency; utilization efficiency; allocative efficiency; counter-factual analysis;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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