Sources of Economic Growth and Catch Up Using Augmented Growth Accounting Framework: The Case of China, 1990-2018

Abstract

This paper examines the sources of economic growth in China to identify the key drivers of its economic performance during the period of 1990-2018, then analyses the growth gap between China in comparison to United States (leader of world economy) to understand the sources of catchup economic performance during the same period. The paper uses the augmented growth accounting framework to decompose the aggregate growth of an individual economy into the contribution of various inputs (capital and labor) and the total factor productivity (TFP); a process that can be applied to explore the channels through which various determinants influence growth. The estimate results show that China has maintained high growth rates thanks to its ability to sustain both the high rates of capital accumulation and productivity (TFP) growth. Analyzing the proximate sources of a country’s economic growth performance is a first step towards determining what needs to be done to promote growth in a more sustainable manner