Industrialization And Hump-shaped Economic Growth

The world economic doesn't present absolute convergences as neoclassical theory implies, but rather club convergences:The income gaps between low-income countries and middle-income countries enlarge, whereas the gaps between middle-income countries and advanced economies shrink. The economic growth rate appears to be the highest in middle-income countries. Furthermore, the Chinese economy, after having grown at high rate for more than three decades, is now slowing down. The new tendency of Chinese economy is not a temporary or periodic slowdown caused by external shocks. The golden times of Chinese economy growing double digits have gone. Instead, China has entered a "new normal" period characterized by medium-high economic growth. By addressing these phenomena, this dissertation puts forward the following questions:why the middle-income countries experience the highest economic growth? Why China can no longer maintain its past high-speed growth? How China's industry sector will develop in the new normal period?The dissertation proceeds as follows. Chapter one is the introduction, presenting the background and significance of this study, the research ideas and methods, the innovations and deficiencies of this dissertation, and prospects for further study. Chapter two gives literature reviews of current studies, focusing on researches on Kaldor's law, structural transformation, and economic growth in China, and provides brief remarks and comments. Chapter three analyses the long-term development stages and stylized facts along the progress. This Chapter establishes the links between industrialization and the hump-shaped growth trend by combining the engine role of industry sector and structural transformation. Chapter four presents the analysis of economic development in China. By studying the applicability of Kaldor's law and the high TFP growth of industry sector in China, this chapter tries to illustrate how industrialization contributed to China's high-speed growth in the early stage of structural transformation. The fifth chapter examines the role shift of industry sector and the rise of service in China, and provides an explanation for the economic growth slowdown. Chapter six focuses on the role of industry sector in the new normal period and analyzes China's industrial structure upgrading in the future through an international comparison. In the end, Chapter seven summaries the main conclusions of this dissertation, and puts forward some feasible policy advices.Based on theoretical analysis and empirical study, this dissertation has come to the following conclusions:Firstly, industry sector is the engine of economic growth, and its productivity growth is higher than that of agriculture and service sectors. The engine effects of industry result from technology progress and scale effect by division of labor, learning by doing, agglomeration and knowledge spillover, high R&D investment, and from reallocation effect by absorbing surplus labor from the agriculture. Secondly, with the increase of income, the growth rate of economy presents a hump-shaped trend, which is the result of industrialization progress and structural transformation. In the early stage of structural transformation, a country's economy shifts from an agriculture-dominated one to an industry-dominated one, and the economic growth accelerates. However, the industry sector cannot enlarge indefinitely. When the economy has developed to a certain phase, under the effects of income increase, sectoral productivity differentiation and capital deepening, the share of a country's industry sector will decrease, and the country will enter into the later stage of structural transformation. In the later stage, the country transfers from industrial dominated economy to service dominated economy, and its economic growth decelerates. As a result, the middle-income countries, which enjoy a relative high share of industry sector, experience a higher economy growth. Thirdly, currently China is transferring from industry-dominated economy to service-dominated economy and consequently experiences an economic downturn. The industry sector has a higher TFP growth than agriculture and service. The industry sector has a higher TFP growth than agriculture and service. The development of industry sector has been the driving force of China's high-speed growth since 1978. However, due to income growth, relative sector productivity and capital deepening, the share of industry sector in China begins to decline in the end while service sector is becoming stronger, which results in an economic growth slowdown. Fourthly, in the new normal, industry is still an important sector for economy, and industrial structure needs to be upgraded urgently. Although industry sector will be gradually replaced by service sector as the leading industry, it's still important from the perspective of industrial linkage. Besides, international comparison illustrates the China's past overdependence on investments and the lack of high-educated talents could be the major factors that hinder China's industrial upgrading. According to the above conclusions, this dissertation offers the following policy advices:facing up economic growth slowdown and lowering the expectation of GDP growth rate; adjusting the mode of government dominance in resources allocation and highlighting the role of market mechanism; absorbing excess production capacity, shutting down outdated capacity, and meeting market demand; attaching greater importance to innovations and high-educated talents to promote industrial upgrading; coordinating the development of the primary, secondary and tertiary sectors, optimizing the structure to maintain a sustained economic growth.Furthermore, compared with previous researches, this dissertation is innovative in the following ways:Firstly, it explains the hump-shaped growth rate trend of long-term economy growth by analyzing the engine role of industry sector and structural transformation. The existing growth theories mainly focus only on a certain period of economic growth. The Malthusian theories concentrate on explaining the poverty trap during the Malthusian epoch. The Neoclassical models capture the modern growth process. The two-sector models in development economics are compatible with the transition from agricultural to industrial society. Even the unified growth theories, which stress the long-term growth process, capture the whole process from stagnation to growth but fail to include the process of growth downturn. In contrast, this dissertation captures stagnation, growth acceleration, and growth deceleration, which enrich the growth theories. Secondly, this study provides an explanation for the Chinese economy shifting from the previous high speed growth to the current medium-to-high speed growth. It is a miracle that China's economy has been growing at high-speed for 30 consecutive years. With the arrival of the new normal, however, China experiences a decline in its GDP growth. There have been many explanations, made by a host of scholars both in China and from abroad, for China's miraculous fast growth in the past and the slowdown at present. For example, some scholars attribute them to the change of demographic dividend, labor scale and of saving rate, the unbalance structure of demand and supply, the excessive investment and its consequent production over-capacity, the decline in TFP growth, and the deceleration of resources reallocation. This dissertation offers a new explanation from the perspective of the role shift of industry sector and structural transformation. Thirdly, this dissertation has re-estimated the TFP growth of industry sector in China with DEA-M index, which avoid any adverse effects by misjudgment of the production function. Besides, the method differs from other TFP growth estimations by DEA-M in two ways:1) using fixed capital stocks instead of fixed capital net values as capital inputs; 2) taking the decomposition of TFP growth by Ray (1997) rather than Fare (1997). Fourthly, this dissertation makes a novel comparison of current economic structures and growths of China and other countries. Most existing international comparisons take the present indicators of advanced economics as a control group and conclude that there are huge gaps between China and the advanced economics. However, this dissertation compares the indicators of China with the past indicators of advanced economics when they were undergoing an economic downturn. The results and conclusions should be more relevant and valuable.