Date of Award

6-2022

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

First Advisor

Eshragh Motahar

Keywords

China, economic growth, TFP, FDI

Abstract

Since the implementation of economic reforms in 1979, the Chinese economy has transformed to one of the fastest growing economies in Real GDP terms. China’s GDP growth averaged at 9.19 percent, annually, between 1989 to 2021. In 2018, the World Bank described this growth as being the fastest sustained expansion in history. This thesis aims to understand the factors behind China’s impressive economic growth. The empirical framework estimates the impact of Total Factor Productivity (TFP), Foreign Direct Investment (FDI), and Openness on China’s Real GDP. The results indicate that a 10% increase in TFP, FDI and Openness leads to a 7.7%, 7.5% and 0.5% increase in Real GDP respectively. TFP remains positive and statistically significant throughout the three regression models, indicating that TFP plays a crucial role in China’s Real GDP. More recently China’s economy has shown signs of slowing down, the International Monetary Fund projects the growth rate to fall to 5.5% by 2024. China’s rapid economic growth is reminiscent to the economic growth of its East Asian neighbors like Japan and the Four Asian Tigers after the end of World War 2. I also compare the growth model of China to the one implemented by Japan and the Four Asian Tigers to analyze whether China’s economy will experience a similar abrupt slowdown. The Chinese government’s role in resource allocation cannot be over looked. As China shifts its focus to rebalancing its economic growth to escape the middle-income trap, the Xi Jinping administration is playing a greater role in resource allocation. In order to get a holistic picture of China’s economic growth in the future it is important to consider government initiatives to maximize productivity, therefore, this paper also analyzes recent news from China about economic goals, the Belts and Road initiative, and the Made in China 2025. This paper finds that Chinese government’s economic policies need to be more effective to increase efficiency in the long run.

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