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China's pattern of growth : moving to sustainability and reducing inequality

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  • Kuijs, Louis
  • Wang, Tao

Abstract

The authors study the sources and pattern of China's impressive economic growth over the past 25 years and show that key issues currently of concern to policymakers-widening inequality, rural poverty, and resource intensity-are to a large extent rooted in China's growth strategy, and resolving them requires a rebalancing of policies. Using both macroeconomic level and sector data and analyses, the authors extend the growth accounting framework to decompose the sources of labor productivity growth. They find that growth of industrial production, led by a massive investment effort that boosted the capital/labor ratio, has been the single most important factor driving GDP and overall labor productivity growth since the early 1990s. The shift of labor from low-productivity agriculture has been limited, and, hence, contributed only marginally to overall labor productivity growth. The productivity gap between agriculture and the rest of the economy has continued to widen, leading to increased rural-urban income inequality. Looking ahead, the authors calibrate two alternative scenarios. They show that continuing with the current growth pattern would further increase already high investment and saving needs to unsustainable levels, lower urban employment growth, and widen the rural-urban income gap. Instead, reducing subsidies to industry and investment, encouraging the development of the services industry, and reducing barriers to labor mobility would result in a more balanced growth with an investment-to-GDP ratio that is consistent with the medium-term saving trend, faster growth in urban employment, and a substantial reduction in the income gap between rural and urban residents.

Suggested Citation

  • Kuijs, Louis & Wang, Tao, 2005. "China's pattern of growth : moving to sustainability and reducing inequality," Policy Research Working Paper Series 3767, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3767
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    References listed on IDEAS

    as
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    Cited by:

    1. Yinhua Mai & Xiujian Peng & Peter Dixon & Maureen Rimmer, 2014. "The economic effects of facilitating the flow of rural workers to urban employment in China," Papers in Regional Science, Wiley Blackwell, vol. 93(3), pages 619-642, August.
    2. Dong He & Wenlang Zhang & Jimmy Shek, 2007. "How Efficient Has Been China'S Investment? Empirical Evidence From National And Provincial Data," Pacific Economic Review, Wiley Blackwell, vol. 12(5), pages 597-617, December.
    3. John Knight & Wei Wang, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," The World Economy, Wiley Blackwell, vol. 34(9), pages 1476-1506, September.
    4. Anping Chen & Nicolaas Groenewold, 2011. "Regional Equality and National Development in China: Is There a Trade‐Off?," Growth and Change, Wiley Blackwell, vol. 42(4), pages 628-669, December.
    5. Mylène Gaulard, 2010. "Baixa da taxa de lucro e crescimento chinês ," Post-Print halshs-01811556, HAL.
    6. Horst Siebert, 2007. "China: Coming to Grips with the New Global Player," The World Economy, Wiley Blackwell, vol. 30(6), pages 893-922, June.
    7. Anping Chen & Nicolaas Groenewold, 2016. "Output Shocks In China: Do The Distributional Effects Depend On The Regional Source?," Economics Discussion / Working Papers 16-20, The University of Western Australia, Department of Economics.
    8. Yinhua Mai & Xiujian Peng & Peter B. Dixon & Maureen T. Rimmer, 2009. "The effects of facilitating the flow of rural workers to urban employment in China," Centre of Policy Studies/IMPACT Centre Working Papers g-188, Victoria University, Centre of Policy Studies/IMPACT Centre.
    9. Dollar, David & Kraay, Aart, 2006. "Neither a borrower nor a lender: Does China's zero net foreign asset position make economic sense?," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 943-971, July.
    10. Chen, Anping & Groenewold, Nicolaas, 2018. "The regional effects of macroeconomic shocks in China," China Economic Review, Elsevier, vol. 48(C), pages 139-154.
    11. John Knight & Wei Wang, 2011. "China’s Macroeconomic Imbalances: Causes and Consequences," The World Economy, Wiley Blackwell, vol. 34(9), pages 1476-1506, September.
    12. Jun Zhang, 2008. "China's Economic Growth: Trajectories and Evolving Institutions," WIDER Working Paper Series RP2008-33, World Institute for Development Economic Research (UNU-WIDER).
    13. Yuqing Xing, 2008. "FDI in China: Facts and Impacts on China and the World Economy," Working Papers EMS_2008_03, Research Institute, International University of Japan.
    14. repec:zbw:bofitp:2011_015 is not listed on IDEAS
    15. Adolf K.Y. Ng & Zaili Yang & Stephen Cahoon & Paul T.W. Lee & Winai Homosombat & Adolf K. Y. Ng & Xiaowen Fu, 2016. "Regional Transformation and Port Cluster Competition: The Case of the Pearl River Delta in South China," Growth and Change, Wiley Blackwell, vol. 47(3), pages 349-362, September.
    16. Di Wu & Peng Gao & Jichang Dong, 2012. "Impact Of Subsidy On Low-Rent Housing Lessees' Welfare In China," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 643-660.
    17. Marco G. Ercolani & Zheng Wei, 2010. "An Empirical Analysis of the Lewis-Ranis-FEi Theory of Dualistic Economic Development for China," Discussion Papers 10-06, Department of Economics, University of Birmingham.
    18. Wang Dewen, 2010. "Can Social Security Boost Domestic Consumption in the People’s Republic of China?," Microeconomics Working Papers 21881, East Asian Bureau of Economic Research.
    19. Peng, Xiujian, 2015. "Contribution of rural migration to China's economic growth - a dynamic general equilibrium analysis," Conference papers 332584, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    20. Chen, Anping, 2010. "Reducing China's regional disparities: Is there a growth cost?," China Economic Review, Elsevier, vol. 21(1), pages 2-13, March.
    21. He, Qing & Tai-Leung Chong, Terence & Shi, Kang, 2009. "What accounts for Chinese Business Cycle?," China Economic Review, Elsevier, vol. 20(4), pages 650-661, December.
    22. Wang Dewen, 2010. "Can Social Security Boost Domestic Consumption in the People’s Republic of China?," Working Papers id:2490, eSocialSciences.
    23. MILOSAN, Alexandru-Ioan, 2013. "China'S Rise And U.S.- Chinese Tension," Academica Science Journal, Economica Series, Dimitrie Cantemir University, Faculty of Economical Science, vol. 1(2), pages 95-101, May.
    24. Mr. Waikei R Lam & Xiaoguang Liu & Mr. Alfred Schipke, 2015. "China’s Labor Market in the “New Normal”," IMF Working Papers 2015/151, International Monetary Fund.

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    Keywords

    Economic Growth; Labor Markets; Economic Theory&Research; Municipal Financial Management; Achieving Shared Growth;
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