Determinants of Economic Growth in China

Abstract

China is one of the strongest economies in the world which is only second to the United States. Over the past four decades, China was experiencing a fast economic growth and its rise from a developing country to a significant economic power is spectacular. The researchers try to identify main determinants of economic growth using annual data from 1982 to 2018.Multiple regression analysis using OLS method was employed to investigate the influence of each explanatory variable on the GDP per capita growth rate.

The results indicate that the education level and foreign direct investment (FDI) inflows have positive and significant impact on economic growth while population growth has imposed a negative and significant impact on growth. As results suggest, education level has played a major role in achieving higher growth rates in China. At present, 4 per cent of China's total GDP is invested in education. If the government can promote education in China, it would promote economic growth further.

This study proves that FDI inflows also have a significant positive influence on economic growth. China has imposed a number of restrictions on FDI inflows. However, according to the results of this study, if the policymakers can open up the economy to facilitate FDI inflows, it would promote economic growth in China significantly. Due to the one-child policy, China is still maintaining a very lower population growth. Due to this, China has faced a severe demographic problem of aging population. That problem has led to slow down the economic growth in China.