Determinants of China’s structural change during the reform era

Abstract

Purpose Economic theories on structural change focus on factors such as fluctuations in relative prices and income growth. In addition, China’s reform and opening up has also been accompanied by increasing openness, significant fluctuations in investment rates, and frictions in the labor market. Existing literature lacks a unified theoretical framework to assess the relative importance of all these determinants. The paper aims to discuss these issues. Design/methodology/approach To incorporate all of the potential determinants of China’s structural change, the authors build a two-country four-sector neoclassical growth model that embeds the multi-sector Eaton and Kortum (2002) model of international trade, complete input-output structure, non-homothetic preference and labor market frictions. The authors decompose the sectoral employment shares into six effects: the Baumol, Engel, investment, international trade, factor intensity and labor market friction effects. Using the data of Chinese economy from 1978 to 2011, the authors perform a quantitative investigation of the six determinants’ effects through the decomposition approach and counterfactual exercises. Findings Low-income elasticity of demand, high labor intensity, and the existence of the switching costs are the reasons for the high employment share in the agricultural sector. Technological progress, investment and international trade have comparatively less influence on the proportion difference of employment in the three sectors. Originality/value Therefore, to examine the impact on China’s structural change, in addition to Baumol effect and the Engel effect, it is also necessary to consider the impact of three more factors: international trade, investment and switching costs. Therefore, the authors decompose the factors that may influence China’s structural change into the Baumol, Engel, investment, international trade, factor intensity effect and switching cost effects. The authors evaluate these six effects using the decomposition approach and counterfactual exercises.

Exploring the drivers of agricultural wages growth in China: A comprehensive framework utilizing input-output and structural decomposition methods

“…During this period, there was a heightened emphasis on investment, which overshadowed the role of the consumption effect.). This effect suggests that, as individuals’ income levels rise, the proportion of income spent on agricultural products decreases [ 8 , 27 , 28 ]. Nonetheless, even in the presence of the Engel effect, consumer demand remained the most crucial factor influencing agricultural wages growth, ranking first in terms of contribution.…”

“…As individuals experience an increase in income, their consumption of agricultural products may also increase. However, owing to the Engel effect [ 27 ], which suggests that demand for non-agricultural products increases at a faster rate with rising income, the income elasticity of demand for agricultural products is lower than that for non-agricultural products [ 8 ]. China’s Engel coefficient has decreased over time, leading to a decline in the income elasticity of demand for food from 0.55 in 1978 to 0.08 in 2015 [ 28 ].…”

“…For an extended duration, scholars have dedicated their attention to the examination of supply [3][4][5], and demand [2,[6][7][8] as pivotal factors for comprehending the dynamics of agricultural wages. Notably, numerous researchers have conducted investigations into the influence of industrial linkages [8][9][10] and agricultural support policies [11][12][13][14] on agricultural wages.…”