Explaining China's Growth

We want to understand what drove the explosive growth in GDP per capita of China over the last several decades. We also want to understand whether that growth will continue. First, let's look at the facts on the level of GDP per capita and the growth rate of GDP per capita. 

China and South Korea both had high growth rates in the 20th century, and China's growth rate has persisted at a high rate into the 21st. But note that like South Korea, China's growth rate has slowed down as it got richer. The question from this data so far, though, is how or why the growth rate accelerated in the first place. We can attribute some of that to parameters that the Solow model tells us are important, like the population growth rate and the share of GDP used for capital formation.

We want to be able to forecast what will happen to GDP per capita in the future. Using the Solow model, we can pick out the key parameters like sI, gA, gL, and the initial value of A0, and use that to plot the BGP for countries. Based on China's recent data, this implies that it could pass the US in GDP per capita around 2060. Note that this analysis suggests China is already on a BGP, and the main difference with the US is that the growth rate of productivity is higher (around 4%). Models of productivity growth will suggest that this might be too aggressive. 

This analysis depended on forecasting productivity levels and growth rates. We used a Gemini chat to form the code to do this. The link is here: