Generally speaking, there are three main factors that influence economic growth——capital
investment, labor and total factor productivity (TFP).
Although China has gradually liberalized the one-child policy, but in the short term, China's
population growth rate will not increase greatly, while with the increase of China's population
aging trend, China's labor population ratio will continue to decline. Therefore, China‘s long-term
growth of the economy cannot rely on the increase of labor force.
On the other hand, China's investment ratio (the proportion of total investment GDP) has
ranked high in the world. The rapid growth of local government debt in China has ...view middle of the document...
For my study, I suppose the function display constant returns to scale:
Take logarithm on both sides:
= ln + α ln + ( 1 − ) ln
Make some transformations:
) = ln + α ln(
+ ( 1 − )
Then we can derive TFP:
− ( 1 − )
Symbols Meaning Data Source
Beijing’s total annual GDP (comparable prices with GDP in
1978) in billion yuan
Beijing’s capital stock at the year end, using Jun
Zhang’s(2004) method of calculation(commonly used these
+ ( − )−, = . %
L Beijing’s annual number of employees
The regression results are shown below:
) = −. + . ∗ (
R Square 0.9630
Adjusted R Square 0.9619
NO. of observations 35
Intercept -0.6014 0.0651 -9.2350 0.0000
) 0.8921 0.0402 29.3025 0.0000
First of all, R Squares of the regressions is above 0.9, and F-value is significant, indicating
that labor and capital investment have significant correlation with GDP and the fitness of the
model is good. P-values of all the variables are nearly 0, indicating that independent
variables can well explain changes in the dependent variable.
1979-2013 Growth and contribution rate of labor, capital and TFP
1979-1990 316.99% 671.56% 33.28% -285.70% -90.13% 189.00% 1.13%
1991-1995 151.74% 83.30% 4.94% 76.90% 50.68% 48.97% 0.35%
1996-2000 76.71% 52.18% -6.20% 30.83% 40.18% 60.69% -0.87%
2001-2005 87.96% 56.02% 39.61% 33.71% 38.32% 56.82% 4.86%
2006-2010 73.86% 42.89% 12.17% 34.28% 46.42% 51.81% 1.78%
2010-2013 38.17% 33.73% 10.60% 6.93% 18.16% 78.85% 3.00%
16136.97% 9490.21% 142.51% 7655.37% 47.44% 52.46% 0.10%
From the above data we can clearly see that, from 1979-2013, the average contribution
rate of labor is only about 0.10%, which is much less than that of capital (52.46%) and TFP
(47.44%). Therefore, Beijing's economic development is capital and technology driven.
The reason behind is: because of its status as the capital of China, Beijing has become the
center of finance, technology and education. As nearly all the country's top institutions in the third
industrial (administrative services, financial services, science, top universities, cultural, sports)
established headquarters in Beijing, Beijing's third industry scale has become the largest in China.
The third industry takes an absolute dominant position in Beijing, while the percentage of second
industry in Beijing's economy is very small. Since the third industry is mainly driven by capital
and technology, Beijing's economic development model is capital and technology intensive.
Next, let’s take a further look on...