China’s GDP Growth Decomposition: 1952-2005 Economics Essay

-China’s GDP Growth Decomposition: 1952-2005
Name
ECN 310 The Chinese Economy
Mengxiao Liu
Date
China’s GDP growth rates 1952-2005
Period

GDP growth

Fixed Capital

Labor

Human capital

TFP

1955-1965

3.8%

5.2%

1.4%

2.0%

0.4%

1966-1976

4.2%

7.5%

2.4%

3.1%

-0.8%

1978-1990

8.9%

8.3%

3.0%

3.9%

3.2%

1991-1999

10.6%

10.4%

1.1%

1.7%

5.1%

2000-2005

9.5%

12.6%

1.0%

1.8%

3.1%


Contribution to Measured GDP Growth from


Period

Fixed Capital

Labor

Human capital

TFP

1952-1978

54.09

0.00

31.04

14.87

1952-1957

12.78

0.00

14.84

72.38

1957-1978

69.39

0.00

37.04

-6.43

1978-2005

43.69

0.00

16.20

40.10

1978-1995

37.52

0.00

19.27

43.20

1995-2005

55.01

0.00

10.57

34.42


Contribution to Measured GDP Growth from


Period

Fixed Capital

Labor

Human capital

TFP

1955-1965

59.76

0.00

30.88

9.36

1966-1976

77.08

0.00

41.53

-18.61

1978-1990

39.81

0.00

24.65

35.53

1991-1999

42.45

0.00

9.32

48.23

2000-2005

57.10

0.00

10.62

32.28

The average income level of a citizen of a country is often approximated using the ratio between the wealth generated each year in an economic territory, generally its Gross Domestic Product (GDP), dividing it number of people or population. That ratio, the GDP per capita, is one of the most used economic indicators, and the GDP information also provides insights on the labor productivity, which shows the share of GDP that is generated by the workers. China's (GDP) has grown at a rapid rate in the past 40 years. Increase in the GDP of a country may be due to efficiency gains in the allocation of the labor input factor and capital , which increases employment either by an increase in the employed population, either because of the two factors at the same time. From 1978, there has been improvement in labor productivity in China as the GDP has grown.
In 1955-1965, GDP growth in China was 3.8% and TFP 0.40%. Chairman was the leader of China and created a socialist economic structure where central planning influenced economic activities, with focus on collectivization of rural agriculture and industrialization (Chen, 2016). Rural peasants worked in the collective farms, and the industry was largely underdeveloped. When Mao Zedong ascended to power in 1949, China was poor and devastated by war and the country was largely rural.
The contribution of capital stock to China’s GDP growth during 1955-1965 is 59.8%, while human capital was 30.41%. In the agricultural-based economy, the 3.8 % GDP growth rate was high for a country’s economy that had been stagnant for decades. However, China was underdeveloped and heavily reliant on agriculture. Analysis and estimates of the economical and productive activities shows comparability of growth in periods. The Great Leap Forward (1958-1962) was a social and development campaign that focused on development plan to improved agriculture and industrialization (Jung & Chen, 2019). The Great Leap Forward focused on transforming the country's agricultural economy, but created chaos and uncertainty in the sector which caused a famine that killed millions of people
GDP growth during 1966-1976 was 4.2% and TFP was -0.80%. The Cultural Revolution (1966-1976) was Mao's campaign that targeted the supporters of capitalism in the communist party and the country, and left several million people dead and affected the economy. Decrease in the TFP occurred at time when there was a decrease in productivity and efficiency when compared to 1955-1965. However, there was focus on capital accumulation, which influenced growth before and after the 1978 reforms. The high savings rate also meant that consumption only ...