China W3

Question 1

what are the supply-side reforms that have promoted growth

Answer 1

1. Labour markets - migration/urbanisation, technical development, increase skills, schools and capital.
2. Goods and services - enhancing competitiveness such as privatisation, market structure like removing price controls, WTO, FDI.

Question 2

Draw the Solow model and the effects of inward FDI, migration and human capital accumulation

Question 3

Describe what Brendt and Zhu found

Answer 3

1978-2007, growth in the non-state sector is a key reason for China’s growth rate. Increased investment is important however was in the state-sector so less effective. 1998-2007, the state sector improved therefore capital accumulation was important.

Question 4

Describe what Wei et al found

Answer 4

1979-2015, physical capital investment accounted for 68% of growth. Post 2009, capital investment became important. Total factor productivity before 2008 accounted for 20% of growth.

Question 5

What will sustain future growth in China

Answer 5

1. Technology and innovation - develop its own distinctive products and sell globally.
2. Labour force skills - move to higher value-added sectors, higher innovative sectors require higher skilled labour.
3. Re-balancing the economy towards the consumer - consumer-led growth will help balance the economy.
4. New trade and investment opportunities - One belt, one road help to build Chinese presence.

Question 6

Derive and equation for China’s trade surplus and show it in the long-run model

Answer 6

Expenditure: Y = C + I + G + NX
Income: Y = C + S + T
Income = Expenditure
(S - I) + (T - G) = CF = NX

Question 7

What three things show currency manipulation and which of these did China do

Answer 7

1. Large surplus with the US (YES).
2. Current-account surplus of more than 3% of GDP.
3. Spends more than 2% per year to buy foreign assets to suppress the value of its currency.

Question 8

Why do Chinese households save so much

Answer 8

1. Income uncertainty and lack of a social safety net.
2. Competitive marriage market.
3. Cultural norms.
4. Lack of financial market development.