Economic growth analysis of china

Over the last 3 decades, China's economy saw an average annual real growth rate of 9 percent. Very few
countries over the globe have been able to match the pace of China's sustained economic growth. Since
the start of economic reform in 1978, China has maintained a remarkable growth rate. Being the world's
largest developing country, with one-fifth of the world population, China's growth has contributed
significantly to the reduction of global income poverty and inequality by lifting over 200 million people
out of $1 per day poverty in the past three decades.
The graph below displays Chinas growth miracle when compared with other worlds major economies
in the past two decades.

Research works have found out that the augmented Solow model predicts China's economic growth
rate accurately, and there are four main determinants of China's relative success. Capital formation has
played a major role in China's economic growth, and this view of investment driven growth does not
contradict out-of-equilibrium neoclassical growth theory. Economic growth has been intertwined with
productivity-enhancing structural change throughout China's post-reform development process.
Conditional convergence also contributes significantly to growth differences between China and other
countries. Lastly, the low population growth rate resulting from the restrictive population policy makes
an important contribution to China's growth performance relative to many other developing countries.
CAPITAL FORMATION THROUGH INVESTMENT
It is widely believed that China's exceptional growth performance over the past three decades is most
fundamentally a reflection of the high investment rates that have characterized the economy.

As the Figure illustrates, real gross capital formation over the entire reform period averaged a fairly
steady 38.3 percent of real GDP, which is very high by international standards. The rate of gross fixed
capital formation has increased significantly in recent years, rising from an average of 29.3 percent
between 1978 and 1993 to an average of 36.6 percent thereafter. Inventory accumulation amounted to,
on average, 5.5 percent of 23 GDP. It peaked at the end of 1980s, reflecting the severe economic
recession, and declined gradually thereafter thanks to reforms away from the planned economy. Hence,
it is not implausible to hypothesize that China's growth success is mainly because it invests so much.
STRUCTURAL CHANGE THROUGHOUT POST-REFORM DEVELOPMENT PROCESS
The first stage of economic reform (1978-85) concentrated on the rural areas. The communes were
disbanded and individual incentives were restored. Farming households were given use-rights to
collectively-owned land under long term leases, and the right to sell their marginal produce on the open
market. Rural nonfarm enterprises were permitted, and they stepped in to produce the light
manufactures that the urban state-owned enterprises (SOEs) generally failed to supply. Rural production
rose rapidly as farms became more efficient, as surplus farm labor was used more productively in rural
industry, and as rural entrepreneurship, saving and investment responded to the new opportunities.
The second stage of economic reform (1985-93) was an incremental process of reforming the urban
economy, in particular the SOEs which were gradually given greater managerial autonomy. The
principal-agent problem inherent in state ownership limited the efficiency of SOEs but increasing
competition from other market participants initially village and township enterprises and later
domestic and foreign privately-owned enterprises grew steadily. The third stage of economic reform
(1993- ) was ignited to mobilize support for more radical reforms. The private sector was invigorated.
Moreover, administrative and regulatory reform of rural-urban migration, the banking system, the tax
system, foreign trade, and foreign investment lifted various binding constraints on economic growth.
Employment in agriculture began to fall in absolute terms (from 340 million) in the early-1990s, and

urban employment, 183 million in 1993, rose by 73 million over the next decade, mainly as a result of
rural-urban migration
Increase in productivity
The change in Chinas sectoral composition of output involved the reallocation of labour from low
average labour productivity (and possibly zero marginal productivity) agriculture to high productivity
industry. According to the official Chinese data, the agricultural labour force fell from 71 percent of the
total in 1978 to 46 percent in 2000. The associated increase in average labour productivity can be
expected to have raised the growth rate.
Low population growth rate
China has implemented a draconian population policy since the late 1970s. Despite the controversy over
the humanity of the one child family policy, it has been efficient in reducing fertility and slowing down
the rate of population growth. This reduced the pressure on the land and on other scarce resources. We
hypothesize that Chinas growth of GDP per capita benefited from its restrictive population policy.
Human capital can raise the individual productivity of workers and improve the adaptability, allocative
efficiency, and technical level of an economy. Based on the Barro and Lee (2001) data on international
educational attainment, we find that China's average years of schooling in total population aged over 15
(5.6 years) was much lower than that of high income economies (8.6 years), but higher than that of
South Asia (3.1 years) and Sub-Saharan Africa (2.9 years), and on a par with that of Latin America and
the Caribbean (5.5 years) over the period 1980-2000. The pattern of annual growth rate of average
years of schooling shows opposite results: the average annual growth rate of China (1.5 percent) was
faster only than that of high-income economies (1.2 percent) and slower than those of other developing
country groups. Therefore, we expect that Chinas rapid economic growth relative to other developing
countries is partly due to the level of education, while that relative to the high-income economies can
be partly explained by the growth rate of human capital over the reform period.
Economic Growth Analysis of Barbados
Since achieving independence in 1966, the island nation of Barbados has transformed itself from a lowincome economy dependent upon sugar production, into an upper-middle-income economy based on
tourism and the offshore sector. Barbados went into a deep recession in the 1990s but After a painful readjustment process, the economy began to grow again in 1993. Growth rates have averaged between
3%5% since then.
The economy of the county is driven by mainly 3 factors -:

Tourism
International business sector
Foreign direct-investment

we dont study in details about the role of travel and tourism industry towards countries Economy.
Solows Model doesnt include travel and tourism factors in the production function for economic
growth of a country.
But Barbados offers a contrasting growth theory where Travel and Tourism total contribution towards
total GDP was about 36.2 % in the year 2014 and the share is expected to further increase in coming

years. Below is the Observed pattern of % share of travel and Tourism towards GDP of Country
Barbados.

Foreign direct-investment was also not discussed well either in class or in Solows model but it plays a
important role In Economic growth of Barbados.
FDI is reported on an annual basis, i.e. how much new investment was received in the country during the
current year. It typically runs at about 2-3 percent of the size of the economy measured by its gross
domestic product. If a country routinely receives FDI that exceeds 5-6% of GDP each year, then this is a
significant success. And in case of Barbados it was nearly about 16.6 % in the year 2012.
Below is the % share of FDI in GDP of Barbados from year 1970-2012.

We can easily observe sharp change in FDI share in between 2003 to 2012 which contributes significantly
towards the ECONOMIC GROWTH of BARBADOS.