From 1978 to 1998 China grew a measured average of 8.0 percent a year, a breathtaking performance. But how fast did the country really grow? And how much did Chinese productivity improve?
Alwyn Young, at the University of Chicago, turned his attention to these questions in his recent “Gold Into Base Medals: Productivity Growth in the People’s Republic of China during the Reform Period,” in the December 2003 Journal of Political Economy. Here is an earlier, on-line version of the paper. Young, who is renowned for his thoroughness and care with data, found the following:
1. Chinese enterprises systematically underreport inflation.
2. In the non-agricultural sector, such underreporting accounts for 2.5 percent growth per year.
3. The main drivers of Chinese growth have been rising economic participation rates, improvements in educational attainment, and the movement of labor out of agriculture.
4. Labor and total factor productivity improvements, in the non-agricultural sector, are 2.6 and 1.4 percent respectively.
The bottom line: The Chinese economy has indeed done well. But once we cut through the mysteries of the numbers, we find an explicable reality. The Chinese growth experience is in reality comprised of “reasonable and comprehensible” numbers, rather than miracles. Young even wonders if the Chinese could not have done better than they did. On one hand, most economies would be delighted with a sustained 2.6 percent rate of labor productivity growth. But on the other hand, China has been moving away from a centrally planned economy. We might have expected even larger productivity boosts, given the incentive benefits of economic freedom. We also can interpret the figures as showing that China has enduring problems, and has not moved as far away from central planning as we might wish.