Abstract
The time-varying factor share runs through the entire process of the Chinese economic miracle, unlike the ‘Kaldor Facts’ in developed countries. Following the new structural economics theory, we construct a time-varying elastic production function model that characterises the structural changes of China’s economic element, and decompose the driving force of economic growth to measure the contribution of factor structure. We found that, from 1978–2017, the average contribution of capital, labour, technological progress, and factor structure change to the GDP was 67.01%, 10.38%, 23.08%, and −0.47%, respectively. The measurement results can aptly portray the impact of policy changes in China’s unique gradual reform process, such as the economic market reforms in 1992, the global financial crisis in 2008, and the policy changes of the new economic normal in 2014. Meanwhile, the results reveal that improving factor allocation can accelerate the total factor productivity and promote high-quality development of China’s economy.
Highlights
Since the reform and opening up, China’s economy has been growing
It should be noted that here, we let SCt 1⁄4 1⁄2aðtÞÀaðtÀ1Þ ln KtÀ1=LtÀ1 be the t-th element structure; TFP_t is the t-th growth rate of total factor productivity (TFP), which is equivalent to the sum of the technology progress growth rate and factor structure change:TFP_t 1⁄4 A_t þ SCt: based on the time-varying elasticity production function, the economic growth rate is found to equal to the sum of capital, labour, technological progress, and factor structure contribution: Y_t 1⁄4 A_t þ SCt þ aðtÞK_t þ bðtÞL_t
Considering that, in the process of economic accounting, economic growth is usually expressed by the increase in per capita output, under the condition that the economic scale returns the same (a(t)þb(t)1⁄41), the improved Cobb-Douglas production function Yt 1⁄4 AtKtaðtÞLtbðtÞ can be simplified to Yt 1⁄4 AtKtaðtÞLt1ÀaðtÞ, the equations are divided by Lt, and we obtain per capita output: yðtÞ 1⁄4 AðtÞkðtÞaðtÞ
Summary
Since the reform and opening up, China’s economy has been growing. The gross domestic product (GDP) increased from 367.87 billion RMB in 1978 to 827.12 billion RMB in 2017, an increase of 223.8%, and the per capita GDP increased from 385 RMB in 1978 to 59,660 RMB in 2017, an increase of about 154%, which is known as ‘a miracle never seen in the history of human economy’. The internal structure of industrial structure and technological progress are inherently derived from the factor endowment structure (Fu, Ye, & Wang, 2016) and the functional form itself may change with time (Lin, 2002; Wang, 2013; Zhao & Wang, 2018), which is one of the core ideas of the third wave of development economics, namely the theory of new structural economics (Lin, 2012). From the perspective of factor endowment structure change, this study attempts to separate the factor structure from the economic aggregate growth effect via the time-varying elastic production function model, and measures factor structure change to economic aggregate growth and per capita output growth, respectively This is an attempt to provide new ideas and methods for the measurement of factor structure effects in the process of economic growth in developing countries.
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