China‘s fast economic growth since 1960s was the result of gradual shift in its
economic system, open door policy and its accession to the world trade
organization. The institutional reforms and access to foreign markets has
been followed by investment strategies expanded 45% of Chinese GDP
during last 40 years. The consistent vertical economic growth has no
precedent in the economic history of the world. China has increased its share
in world trade from 0.5% in 1960 to 10% in 2010 and accumulated foreign
exchange reserves of US$3.19 trillion by March 2013. It is not less than a
miracle.
The objective of this study is to investigate into the Chinese labour
productivity and output in the short and long-run perspective to detect the
real source of Chinese economic growth.
Our study is spread over a period starting from 1962 to 2010 because of
political and economic stability with minor crisis. The data was taken from
China Bureau of National Statistics, IMF, World Bank and relevant research
Journals and books. The variables included in this study are: labour
productivity, investment, exports, R&D expenses, capital stock, open door
policy, real exchange rate and US GDP. The VAR model proposed by
Johansen (1988), Johansen and Juselius (1990,1994) and Hendry and Mizon
(1993) was used to measure the nature of relations among the above
variables. Different tests including unit ischolar_main test were applied to test the
stability of the model.
The Econometric results show that international trade and investment in
capital stock and R&D expenses by Chinese Government are the major
determinants, which are responsible for enhancing labour productivity and
output in the long-run, Similarly, real exchange rate appears as an important
determinant to explain change in output in the long-run. US GDP has played
no role in explaining Chinese output growth.
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