Paper: The Economy of People's Republic of China from 1953

Presenter: Peng Yulei (Assistant Professor)

Time: 2016.10.10 Mon PM 7:30

Address: Lingnan Hall Lin Zhixuan meeting room



This paper studies growth and structural transformation of the Chinese economy from 1953 to 2012 through a lens of a two-sector growth model. The main goal of the paper is to provide a systematic analysis of both the pre-1978 reform and post-1978 reform periods in a unified framework. First, we construct a dataset that allows the application of the neoclassical model and computation of wedges, their components, and rates of TFP growth. Second, we determine the key quantitative factors behind growth and structural transformation. The changes in the intersectoral labor wedge play the dominant role in accounting for the change in the share of labor force in agriculture. TFP growth and changes in the intersectoral wedges are the two most significant factors contributing to GDP growth. Further decomposing the effects of reduction in wedges, we find that two components: the production component and the consumption component play a particularly large role. Third, we use the pre-reform period as a key benchmark to measure the success of the post-1978 reforms. We show that reforms yielded a significant growth and structural transformation differential. GDP growth is 4.2 percentage points higher and the share of the labor force in agriculture is 23.9 percentage points lower compared with the continuation of the pre-1978 policies. We provide extensive historical evidence for the reforms that are consistent with the evolution of the components of the wedges. The decrease in the production component of the intersectoral wedge is consistent with increased competition and demonopolization of the economy. The decrease in the consumption component of the wedge is consistent with the price and housing reforms. Finally, we project the path of the Chinese economy until 2050 and also calculate a lower bound on future growth by projecting pre-reform trends.