Technology or investment? An enquiry into the Chinese model of growth at the region level

Abstract

This paper explores the relative contribution of different components to labour productivity growth – for example, the role of capital investment versus increase in technical change – in 31 Chinese provinces over the period 2000–2010. It then investigates the connection between technical change and inflows of foreign direct investment (FDI). The results reveal that capital deepening – that is, investment in fixed capital – has been the most prominent source of labour productivity growth mainly in poorer provinces, while richer provinces have benefitted mostly from increase in technical change. Inflows of FDI are not associated with higher rates of productivity growth. Our results have implications for the sustainability of the current model of growth in China and the patterns of technological development.