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Working paper 771
Xiaodong Zhu, "China's Productivity Challenge", 2024-03-13
Main Text (application/pdf) (3,042,947 bytes)

Abstract: Total factor productivity (TFP) growth has been the primary driver of China's GDP growth. From 1978 to 2007, China experienced an average TFP growth rate of over 4% per year, thanks to economic reforms and decentralization that led to consistent policy and institutional changes initiated from local levels. However, since 2007, the Chinese government has shifted towards a top-down approach, prioritizing policy design at the national level and resource mobilization. While this approach yielded some short-term benefits, such as temporary growth recovery in 2010 following the global financial crisis and the rapid expansion of infrastructure projects, it came at a significant cost to economic efficiency. Without comprehensive bottom-up policy reforms, China's TFP growth rate between 2007 and 2022 averaged only 1% per year, significantly lower than the 4% achieved prior to 2007. The key challenge facing China now is whether it will revert to a decentralized decision-making process.

Keywords: China, Bottom-up Institutional Change, TFP, Growth, Centralization, Growth Slowdown

JEL Classification: O1; O4; O5

Last updated on July 12, 2012