2 - Explaining China’s Rise

Summary

Chapter 2 evaluates three popular explanations of China’s rapid economic rise over the past forty years, including its low income base and cheap labor, demographic dividend, and export promotion. It is shown first that low income or cheap labor alone does not make a country grow faster. In fact, most developing countries do not catch up quickly with developed countries. The chapter then evaluates how much the demographic dividend may have contributed to China’s extraordinary growth. It is shown that the direct demographic dividend resulting mechanically from faster growth of labor than general population accounted for only half a percentage point of China’s GDP per capita growth, and it was not much different from that of many other developing countries. But China enjoyed a higher indirect demographic dividend in the form of higher savings and more education due to a lowering dependency ratio, and it may explain up to 2 percentage points of China’s growth. As for export promotion, the chapter demonstrates that China’s export share in GDP is actually lower than that of most countries, and its rapid export growth is not the cause but the result of its fast economic growth.