Where does the growth come from?
high accumulation of capital. The investment rate in China
is between 40 and 45% of output, a very high number. For comparison, the investment rate
in the USA is only 17%. More capital means higher productivity, and higher output.
Using high capital, producers provide unemployed people more job and with it, there exist high production.
GDP will increase with respect to this cycle.
High capitalMore jobMore productionHigh GDP
Surely, it is also about consumption but increasing society’s welfare, first firms, governments have to increase production and employment rates.
The second is very fast technological progress. The strategy followed by the Chinese
government has been to encourage foreign ﬁrms to come and produce in China. As foreign ﬁrms are typically much more productive than Chinese ﬁrms, this
productivity and output. Another aspect of the strategy has been to encourage joint ventures between foreign and Chinese ﬁrms; making Chinese ﬁrms work
with and learn from
foreign ﬁrms has made them much more productive. When described in this way, achieving
high productivity and high output growth appears easy, with easy recipes that every poor
country could and should follow.