Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- 1 Opportunities and challenges in China's economic development
- 2 Why the Scientfic and Industrial Revolutions bypassed China
- 3 The great humiliation and the Socialist Revolution
- 4 The comparative advantage-defying, catching-up strategy and the traditional economic system
- 5 Enterprise viability and factor endowments
- 6 The comparative advantage-following development strategy
- 7 Rural reform and the three rural issues
- 8 Urban reform and the remaining issues
- 9 Reforming the state-owned enterprises
- 10 The financial reforms
- 11 Deflationary expansion and building a new socialist countryside
- 12 Improving the market system and promoting fairness and efficiency for harmonious development
- 13 Relflections on neoclassical theories
- Appendix Global imbalances, reserve currency, and global economic governance
- Index
6 - The comparative advantage-following development strategy
Published online by Cambridge University Press: 05 June 2014
- Frontmatter
- Contents
- List of figures
- List of tables
- Preface
- 1 Opportunities and challenges in China's economic development
- 2 Why the Scientfic and Industrial Revolutions bypassed China
- 3 The great humiliation and the Socialist Revolution
- 4 The comparative advantage-defying, catching-up strategy and the traditional economic system
- 5 Enterprise viability and factor endowments
- 6 The comparative advantage-following development strategy
- 7 Rural reform and the three rural issues
- 8 Urban reform and the remaining issues
- 9 Reforming the state-owned enterprises
- 10 The financial reforms
- 11 Deflationary expansion and building a new socialist countryside
- 12 Improving the market system and promoting fairness and efficiency for harmonious development
- 13 Relflections on neoclassical theories
- Appendix Global imbalances, reserve currency, and global economic governance
- Index
Summary
Empirical facts have proved the futility of a development strategy directly aiming at upgrading the industrial and technological structure. The reason is that artificially upgrading the industry and technology structure defies the comparative advantage determined by the existing endowment structure and will result in distortions and low efficiency. So, to upgrade that structure and ensure the maximum efficiency, the cause – the factor endowment structure – must be changed.
Factor endowment refers to an economy's relative abundance in capital, labor, land, and natural resources. Usually land and natural resources are given, for countries can no longer have colonies in foreign lands, as in the eighteenth and nineteenth centuries. The gap between labor growth in developing and developed countries is minimal: labor growth in developing countries is usually 2–3 percent, and that in developed countries is also above zero. The major difference comes from capital accumulation. For some countries, the rate is as high as 30–40 percent, but for others, it is less than 10 percent.
So, upgrading the endowment structure refers to increasing the relative abundance of capital. For any production period the factor endowment structure determines the sum of the resources, capital, and labor available to an economy and the relative prices of capital and labor. In the longer term the endowment structure can change with changes in population and capital accumulation. And the capital accumulation rate determines the upgrading of the factor endowment structure.
- Type
- Chapter
- Information
- Demystifying the Chinese Economy , pp. 124 - 151Publisher: Cambridge University PressPrint publication year: 2011