Forget about the current troubles, or for that matter the current innovations, I’m talking about the earlier golden years. It seems obvious to many people that Chinese growth is Solow-like catch-up growth, as the country was applying already-introduced technologies to its development.
But how many other economies have grown at about ten percent for so long? Was there not a secret ingredient added to the mix?
Increasing returns to scale? Understanding the importance of having networks which allow an employer to assemble so many engineers so quickly for a new project? Something about Communist Party governance which enabled the corruption to be channeled productively into building more infrastructure rather than holding up progress? Tiger Mom parenting combined with a relatively meritocratic exam system?
I do not find it unreasonable to postulate that two to three percentage points of that yearly growth were in fact due to innovation and increasing returns to scale in some manner. Note that most of these innovations are useful only at China’s (previous) ppf and they are less valuable to the West, or perhaps simply not transferable.
More radically, is there some “natural,” culture-neutral rate at which innovations trickle down from the world leaders to the poorer countries? The diversity of growth rates would seem to indicate not. Is each country then not innovating — with varying degrees of success — by building its culture-specific net for catching and transmitting global innovations throughout the nation?
In which case we are back to catch-up growth not being entirely well-defined.