The Contribution of Marketization to China’s Economic Growth*

Fan Gang 1 , Wang Xiaolu 1 and Ma Guangrong 2
1 National Economic Research Institute, China Reform Foundation, Beijing, China
2 Duke University, USA

 
Abstract: Market-oriented economic transition since 1978 has led to remarkable economic development in China. In this study, we use the National Economic Research Institute (NERI) Index of Marketization and a panel data model to investigate the quantitative contributions of marketization to China’s total factor productivity (TFP) and economic growth. Our results indicate that marketization contributed 1.45 percentage points on average to China’s annual economic growth rate during the period from 1997 to 2007 and accounted for 39.2 percent of the increase in TFP. Marketization significantly improved resource allocation. However, economic transition in China has not yet been completed and sustainability of future growth will depend on further market-oriented reforms.
Key words: marketization, economic transition, growth, Total Factor Productivi

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