Using cross-country panel data, this study identifies and discusses major factors contributing to China's strong growth in the past four decades. China's low initial per capita income relative to its own long-run potential, combined with sound policy factors including a high investment rate, strong human capital, high trade openness and improved institutions, enabled the economy to converge with advanced economies in terms of income level. The shift-share analysis with industry-level data shows that strong labour productivity growth in the manufacturing sector largely contributed to China's overall labour productivity growth. Although labour reallocation from agriculture to the services sector made a positive contribution to aggregate labour productivity growth, labour productivity growth in the services sector itself was negative over the 1980–2010 period. China's average potential GDP growth is predicted to decline significantly in the coming decade, to 5%–6% and fall further to 3%–4%—due to the convergence effect and structural problems—unless China substantially upgrades its institutions and policy factors and improves productivity, particularly in its services sector.
Bibliographical noteFunding Information:
*The author thanks the associate editor, two reviewers, Robert Barro, Yiping Huang, Harry Wu and seminar participants at the Australian National University, the Brookings Institution and Korea University for their helpful comments and suggestions and Hanol Lee for research assistance. This work was supported by a Korea University Grant (K1709811).
© 2017 John Wiley & Sons Ltd
- economic growth
- structural change
ASJC Scopus subject areas
- Economics and Econometrics
- Political Science and International Relations