Working Paper: CEPR ID: DP18193
Authors: Jess Fernández-Villaverde; Lee Ohanian; Wen Yao
Abstract: This paper studies China's four-fold increase in per capita GDP relative to the U.S. between 1995 and 2019. First, we argue that China's growth pattern is very similar to that of several other East Asia economies that initially grew very quickly. Second, we show that a minimalist Ramsey-Cass-Koopmans model with a parsimonious TFP catch-up process can account for China's growth path and the growth paths of other East Asia economies at a similar stage of development. The growth paths of other East Asia economies and the model predictions suggest that China's growth will substantially slow, so much so that we find the U.S. growth rate will likely be higher than China's by 2043. We also find that China's income per capita will level off at roughly 44% of the U.S. level around 2100.
Keywords: China; East Asia; Economic Growth; Ramsey-Cass-Koopmans Model; TFP Catch-Up
JEL Codes: E10; E20; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| China's growth pattern (O41) | common theoretical framework for understanding growth across East Asian economies (O11) |
| minimalist Ramsey-Cass-Koopmans model (E19) | captures essential mechanisms underlying China's growth experience (O11) |
| model's calibration and observed patterns of TFP growth (O41) | China's relative per capita GDP level will asymptote to about 44% of the US level around 2100 (F62) |
| US growth rate (N12) | likely surpass China's by 2043 (F17) |
| model matches China's income per capita growth from 1995 to 2019 (O41) | validates model's predictions (C52) |
| slowing TFP growth and demographic changes (O49) | constrain China's future growth prospects (F69) |
| model's implications regarding investment efficiency and mismeasurement of investment rates (E22) | provide insights into discrepancies between observed data and model predictions (C52) |