ECN 310 China’s GDP Growth Decomposition: 1952-2005

China’s GDP Growth Decomposition: 1952-2005
Name
ECN 310
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

During 1955-1965, GDP growth in China was 3.8% and the TFP 0.40%. The economy of People's Republic China (PRC) under the leadership of Mao Zedong was closely linked with Communist Party of China (CPC). Mao who was the founder and leader of CCP (1935-1976) focused on collectivization of the agricultural sector and industrialization. The Chinese economy during Mao's leadership was mostly agricultural based and the majority of the population lived in rural areas, and the small-scale peasants, found work in the labor-intensive farms (Autor, Dorn & Hanson, 2016). Even with focus on industrialization, there was few or no use of modern techniques or machinery. The farms did not provide enough food to the population, and raw materials for industry and export. However, unlike the pre 1949 decades, there was growth as China was able to marshal the population to work n farms, where the economy had been stagnant for many years.
Mao sought a complete transformation of Chinese traditional society as a necessity to modernize the country, where economic, political, and social issue policies were based on a socialist model and they were subordinate to the party and were inspired by the USSR. There was absence of the market, lack of competition and isolation of the economy from the global economic system. The ideology supported political, social-economic and state intervention. By 1949, when Mao became China’s leader the country had been affected by war and the economic system and the Great Leap Forward (1958-1962) was adopted to improve agrarian agriculture and industrialization.
During 1966-1976 the GDP growth rate was 4.2%, while the TFP was -0.80% compared to 0.4% in the period 1955-1965. While the Great Leap Forward resulted in people being paced in communes and the farms being collectivized, the Cultural Revolution (1966-1976) focused on ensuring that socialism was deeply entrenched in the Chinese society. There was no explicit economic philosophy associated with the Cultural Revolution, but there was focus on employing as many workers as possible even when there were not productive. There was increase n the output as reflected in growth, the levels of agriculture per capita continued to be low. The TFP contribution to the economic growth was -18.61, which implies that the productivity declined. The decline in productivity may partly be due to the misallocation of labor and capital as there was forced government spending in the preferred sectors and regions (Tombe & Zhu, 2019).
During 1978-1990, the GDP growth was 8.9% and the TFP was 3.20%, while the TFP contribution to economic growth 35.53%....