What Accounts for the Structural Changes: Good Policies, Good Practices or Good Luck? A Decomposition Analysis for the Recent Chinese Economy

Abstract

We present a structural driver decomposition framework to distinguish three competing explanations for economic structural changes in the Chinese economy: good policies, good practices and good luck. Empirical results suggest that structural changes in the Chinese economy can be divided into three clear phrases: the Great Fluctuation (1993-1997), the Great Moderation (1998-2004), the Great Stability since 2005. We find that the dramatic fluctuation in the Great Fluctuation period is attributed to the combination shock of “good policies”, “good practices” and “good luck”. Both “good policies” and “good practices” account for much of the decline in the structural changes in the Great Moderation period and “good luck” shock is the leading explanation for the decline in structural breaks in the Great Stability period.