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UNU-WIDER Impact of Reform on Economic Growth in China: A Principal Component Analysis

Support functions

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The Impact of Reform on Economic Growth in China: A Principal Component Analysis

The study decomposes the sources of Chinese growth by first making a distinction between technological progress and technical efficiency in the growth accounting framework, and then identifying a series of reform programmes, such as urbanization, structural change, privatization, liberalization, banking and fiscal system reforms as the key components in institutional innovation which facilitate the improvement of technical efficiency and through which economic growth. These components are then incorporated into the model specification, which is estimated based on a panel dataset by applying the principal component analysis (PCA) to eliminate the multicollinearity problem. The results show that urbanization, liberalization and structural change in the form of industrialization are the most important components in contributing to the improvement of technical efficiency and hence growth, highlighting the importance of government policies aimed at enhancing further urbanization, openness to trade and industrial structural adjustments to sustain the growth momentum in China. The study also found that the potential for further enhancing growth through technical efficiency in China is considerable, which can be realized by deepening state-owned enterprises (SOEs) restructuring, and banking and fiscal system reform.
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2008/12
Title:
The Impact of Reform on Economic Growth in China: A Principal Component Analysis
Authors:
Ligang Song and Yu Sheng
Publication date:
February 2008
ISSN Web:
1810-2611
ISBN 13 Web:
9789292300548
Copyright holder:
© UNU-WIDER
Copyright year:
2008
Keywords:
institutional reform, growth, technical efficiency, principal component analysis, stochastic frontier analysis
JEL:
O11, O23, O47, E61
Project:
Southern Engines of Global Growth
Sponsor:
The governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency — Sida) and the United Kingdom (Department for International Development).
Format:
online

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