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1 - Just How Rapid Is China’s Rise?

A Global Comparison

Published online by Cambridge University Press:  27 August 2021

Tian Zhu
Affiliation:
CEIBS

Summary

Chapter 1 focuses on China’s fastest growing thirty-year period of 1982–2012, during which its per capita GDP grew by 9.12% per year. China grew not only faster than the United States (1.92%) and the high-income OECD countries (averaging 1.86%), but also much faster than low- and middle-income countries such as those in sub-Saharan Africa (averaging 0.45%) and Latin America and the Caribbean (averaging 1.21%). The chapter then evaluates the extent to which China’s growth rate may have been overstated. Two popular data sets, the Maddison Project and Penn World Table, adjust China’s growth downward by around 2 and 3 percentage points respectively. Even so, China’s growth was the still the fastest by far. The author also uses Engel’s Law and household income data to infer China’s true GDP per capita growth, which, averaging over thirty years, is more or less in line with the official figure. The chapter also shows that China’s rapid growth is similar to that achieved by Japan and the four Asian Tiger economies a few decades earlier. But no other developing countries have achieved the same success as these East Asian economies.

Type
Chapter
Information
Catching Up to America
Culture, Institutions, and the Rise of China
, pp. 13 - 32
Publisher: Cambridge University Press
Print publication year: 2021

The Chinese economy has grown rapidly in most years since 1978. Between 1982 and 2012, the thirty-year period focused on in Chapters 14, China experienced an astounding average annual GDP growth rate of 10.2% and an annual GDP per capita growth rate of 9.12%, according to official figures.Footnote 1 In contrast, over the same period, global GDP per capita registered an average growth rate of just 1.48%, while the same figure for high–income developed OECD countries was only 1.86%.Footnote 2 Even after 2012, when the Chinese economy began to slow down, its growth remained one of the fastest in the world. Note that the headline measure of a country’s economic growth is normally the growth rate of GDP. However, in this book, I use the average annual growth rate of GDP per capita (over a given period, say ten years or longer) as a preferred measure of long-term growth to capture the speed of the rise in the standard of living.

Chinese Growth from a Global Comparative Perspective

The fact that China has grown faster than developed countries is not remarkable. Most readers will probably attribute this to China’s very low initial per capita GDP. Economists call this the “catch-up effect.” But do low-income countries always grow faster than high-income countries? Not really. In fact, it is usually the opposite. Table 1.1 shows that between 1982 and 2012, the average annual growth rate of GDP per capita in low-income countries was only 1.38 percent, which was lower than that of developed countries. The average annual growth rate of middle-income countries, including China, was 3.08 percent. Thus, in terms of economic growth, China has outperformed not only high-income developed countries but also low- and middle-income developing countries, and by a large margin. It is this last fact that constitutes the Chinese growth puzzle.

Table 1.1 Economic growth around the world: 1982–2012

Country or Group of CountriesAverage Annual Growth Rate of GDP Per Capita (%)
China9.12
India4.41
United States1.92
World1.48
High-income OECD countries1.86
Low-income countries1.38
Middle-income countries3.08
Latin America and the Caribbean (all countries)1.21
Sub-Saharan Africa (all countries)0.45

Note: Unless stated otherwise, all data in this book are from the data set of World Development Indicators published by the World Bank (https://datacatalog.worldbank.org/dataset/world-development-indicators). The version of the dataset used in this book for the 1982–2012 period was published on December 18, 2013. All average growth rates between 1982 and 2012 were calculated as an average of thirty annual growth rates from 1983 to 2012.

In this book, I use the World Bank classification of all countries into low-income, middle-income (including lower middle and upper middle), and high-income groups. Both low-income and middle-income countries are referred to as developing countries, while high-income countries are referred to as developed countries. The World Bank’s latest classification criteria were based on countries’ gross national income per capita (GNI per capita, which is roughly the same as GDP per capita). In 2012, low-income countries were those with a GNI per capita of US$1,035 or less; lower middle-income countries were those with a GNI per capita between US$1,036 and US$4,085; upper middle-income countries were those with a GNI per capita between US$4,085 and US$12,615; and high-income countries were those with a GNI per capita above US$12,615. These income criteria were adjusted slightly downward in 2018. According to this classification, all Western countries, Japan, and the four Asian Tigers are high-income developed economies, while developing countries include upper middle-income countries, such as China, Malaysia, and Brazil; lower middle-income countries, such as India, Nigeria, and the Philippines; and low-income countries, such as Haiti, Tanzania, and Bangladesh.Footnote 3 Most countries in Asia, Africa, and Latin America and the Caribbean are developing countries.

The rate of economic growth varies not only across countries but also across different periods. Table 1.2 breaks down the 1980–2010 period into three decades (the 1980s, 1990s, and 2000s), leading to the following observations. First, China’s economic growth was the fastest in the world in all three decades. In addition, India had a much slower growth rate than China but still grew faster than other developing countries.

Table 1.2 GDP per capita growth rates in the world: 1980–2010 by decade

Country or RegionAvg. Annual Growth Rate, 1981–1990Avg. Annual Growth Rate, 1991–2000Avg. Annual Growth Rate, 2001–2010
BRICS
China7.89.39.9
India3.33.65.9
Russia–3.4–3.55.2
Brazil–0.41.02.5
South Africa–0.9–0.42.2
Asian Tigers
South Korea7.55.23.7
Taiwan6.25.33.5
Hong Kong5.52.43.5
Singapore5.34.33.3
Developing Regions
East Asia and the Pacific5.77.18.2
South Asia3.03.25.3
Europe and Central Asia–1.7–1.74.7
Middle East and North Africa0.21.82.6
Sub-Saharan Africa–0.9–0.42.2
Latin America and the Caribbean–0.81.52.1
Grouped by Income
High-Income Countries2.61.90.9
Middle-Income Countries1.12.34.8
Low-Income Countries0.10.33.2
Developed Countries
European Union2.12.01.0
Japan4.10.90.7
United States2.32.20.6
World1.51.41.3
Data source: World Development Indicators.

Second, the so-called BRICS countries (Brazil, Russia, India, South Africa, and China) had little in common other than the fact that they were relatively large economies among developing countries. Among these five countries, only China and India experienced fast economic growth, while Russia, Brazil, and South Africa only grew modestly. In addition, Russia’s economy suffered negative growth in the 1980s and 1990s. Its growth between 2001 and 2010 largely represented an economic recovery after a long recession and was more or less driven by oil and gas. Brazil’s economic growth was even slower than the average growth rate of all developing countries. Its slightly more robust growth in the 2000s was also mainly due to the resource boom of the decade. With the end of the resource boom, Russia and Brazil have again stagnated in recent years.

Third, the four Asian Tigers grew relatively quickly in the 1980s, but by 1990, they were all high-income developed economies, and their growth rate slowed significantly. In the twenty-first century, their GDP per capita growth rate fell to around 3.5 percent, a growth figure still significantly higher than that of other developed economies.

Fourth, during these three decades, the overall economic growth of developing countries generally accelerated, while that of high-income developed economies (including the Asian Tigers) slowed over time. However, apart from countries in East Asia and the Pacific region (mainly China and Southeast Asian countries) and South Asia (mainly India), which had significantly higher growth than that of developed countries, other developing regions tended to grow more slowly than high-income developed countries in the 1980s and the 1990s. It was not until the twenty-first century that the growth of these regions started to outpace that of high-income countries. This was probably due to the resource boom brought about by rapid growth in China and India, as many developing countries are rich in natural resources.

How Accurate Are China’s GDP Data?

Whether compared with its own past or with other countries, China’s economic growth seems to have been too fast to be credible. Could this be due to China’s official data overestimating or overstating the country’s growth rate? Some twenty years ago, Thomas Rawski, an eminent scholar of the Chinese economy, published an article questioning the credibility of China’s GDP data for 1998, the year of the Asian financial crisis, pointing out that the official GDP growth rate of 7.8 percent did not match electricity usage data and other relevant figures.Footnote 4 This article sparked great media interest and debate. In fact, China’s current Premier Li Keqiang did not really trust the official GDP data when he was the party secretary in Liaoning Province, opting instead to trust the figures on power generation, railway freight, and bank loans. The Economist even created a “Keqiang Index” using these three indicators to measure the health of China’s macroeconomy.Footnote 5

GDP growth has always been a key performance measure in China for provincial and local officials, which means that they may have a strong incentive to falsify GDP reports, especially when the local economy is not doing well. As a result, China’s national GDP growth may be overstated.Footnote 6 Local over-reporting is only one reason for the inaccuracy of China’s GDP growth figures. Economists familiar with Chinese statistics have long recognized that underestimating inflation is another important reason for the overestimation of China’s GDP growth.Footnote 7 Real GDP growth is equal to nominal GDP growth minus inflation. Thus, if inflation is underestimated, real GDP growth will be overestimated.

So, how much of China’s GDP growth has been overstated? According to Angus Maddison and Harry Wu, two authorities on Chinese GDP statistics, China’s annual growth between 1978 and 2003 was 7.85 percent, not 9.59 percent as in the official data.Footnote 8 Their research had an influence on the Penn World Table, a widely used data set of national income accounts based on PPP, which also lowered its estimates of China’s GDP growth rate over the years. Table 1.3 shows the compound annual growth rate of China and other countries between 1980 and 2010 based on GDP figures from the Maddison Project and the Penn World Table.Footnote 9 These two data sets lowered China’s growth rate by about 2 percent and 3 percent, respectively, from the official statistics. Yet even with these adjustments, China’s economic growth was still far ahead of every other country.

Table 1.3 Growth rates based on the Maddison Project and the Penn World Table: Compound annual growth rates of GDP per capita over the 1980–2010 period (%)

CountryMaddison ProjectPenn World Table 8.0
China6.986.06
India2.853.97
United States1.671.64
United Kingdom1.851.89
Nigeria1.56–0.85
Brazil0.991.94
Chile1.502.57

Note: The author made the calculations using data from the Maddison Project Database 2013 (www.rug.nl/ggdc/historicaldevelopment/maddison/releases/maddison-project-database-2013) and the Penn World Table version 8.0 (www.rug.nl/ggdc/productivity/pwt/pwt-releases/pwt8.0).

Although China’s GDP growth is very likely to have been overstated, its GDP level has probably been underestimated (Maddison Reference Maddison2007).Footnote 10 This statement may sound contradictory, but it is plausible for two reasons. First, China’s overestimation of real GDP growth may be largely due to an underestimation of inflation, not to an overestimation of its nominal GDP levels.Footnote 11 Second, the value added of the service industry has been constantly underestimated due to poor coverage and other shortcomings in the national statistical system. For example, after the first national economic census in 2004, the NBS revised upward the GDP level for 2004 by 16.8 percent, with an increase in the service industry accounting for more than 90 percent of the total increase.Footnote 12 A 2009 report from Morgan Stanley’s Asia Research department pointed out that the official value added of the service sector significantly underestimated housing costs and personal medical expenses.Footnote 13 My own research with Jun Zhang also showed that during the 2004–2011 period, the imputed rent of resident-owned housing alone, a component of GDP, was underestimated in official statistics by an amount equivalent to 4–5 percent of GDP.Footnote 14

Inferring Growth from Engel’s Law

As a household’s income level increases, the ratio of its food expenditure to total consumption expenditure will decrease. This is called Engel’s Law, which was proposed by nineteenth–century German statistician Ernst Engel (1821–1896). The ratio is called the Engel coefficient. Engel’s Law also applies at the national level: That is, the proportion of a country’s household food expenditure in total consumption expenditure decreases as per capita income increases. Government officials in China may have incentives to falsify GDP figures, but not household consumption expenditure. By quantifying Engel’s Law, linking the Engel coefficient with national income per capita, it is possible to use the change in the Engel coefficient over time to infer the change in income, that is, economic growth.

In a study published in 2011, Richard Anker of the University of Massachusetts collected the Engel coefficients of 207 economies around the world.Footnote 15 He divided these economies into ten deciles, classifying them from low income to high income by their GDP per capita (in constant 2005 PPP dollars) in the year the Engel coefficient was available. Each decile contained about twenty economies. Professor Anker then calculated the average Engel coefficient of all economies in each decile. The results are presented in the first two columns of Table 1.4. I added the third column, which divides all economies in the World Development Indicators data set into ten equal deciles by GDP per capita in 1998 and lists the range of GDP per capita for each decile for that year. I used 1998 because Anker collected data on the Engel coefficient over various years and the average data year was 1998. As GDP per capita here is measured in constant dollars, the year chosen should not have a significant effect on the results. My assumption here is that when a country’s per capita GDP falls within a certain decile range in the third column, its Engel coefficient should be around the value in the corresponding decile, and vice versa.

Table 1.4 GDP per capita and Engel coefficients

Decile Ranked by Income (i.e., GDP Per Capita) from Low to HighDecile Average of the Engel Coefficient (%)Range of GDP Per Capita for Each Income Decile in 1998 (in Constant 2005 PPP Dollars)
1 (Lowest Income Decile)50.1(122–342)
253.7(349–617)
345.4(637–1,029)
440.2(1,052–1,865)
540.0(1,869–2,522)
633.7(2,682–4,012)
728.8(4,164–7,371)
821.4(7,451–16,824)
916.7(17,932–30,486)
10 (Highest Income Decile)14.8(30,612–116,108)

Note: The first two columns are reproduced from table 11 in Anker (Reference Anker2011), and the third column is based on data from the World Development Indicators published by the World Bank.

In China, the relevant data to calculate the Engel coefficient as defined by Anker are only available from 1992 and only for urban households. I made the calculations for the years between 1992 and 2012. China’s Engel coefficient was 43 percent in 1992 and 25 percent in 2012. Comparing these figures with the results in Table 1.4, we can see that the Engel coefficient for Chinese urban households in 1992 was between the third and fourth deciles. Based on the third column, the corresponding GDP per capita (in constant 2005 PPP dollars) should be around US$1,040. In 2012, China’s Engel coefficient fell to 25 percent, between the seventh and eighth deciles in the table, with a corresponding GDP per capita in the third column around US$7,400. If the aforementioned inference is correct, GDP per capita in urban China increased sixfold between 1992 and 2012, implying an average annual growth rate of about 10 percent. Taking into account the slower growth rate of rural household income in China (about 1 percentage poin slower), the overall growth rate of GDP per capita in China over these two decades was just under 10 percent.

The correlation between the Engel coefficient and GDP per capita is of course not perfect. Therefore, using Engel’s Law to infer economic growth may not be very accurate. Nevertheless, the fact remains that China’s Engel coefficient went from a lower middle-income economy (about 30th percentile) to an upper middle-income economy (about 70th percentile) in twenty years, suggesting that China’s economic growth during these twenty years was indeed very fast.

Disposable Household Income Growth in China

The GDP growth rate is only one indicator of economic growth. The growth of disposable household income is another indicator, and it better reflects the improvement in the standard of living. China’s disposable income data are collected through household income and expenditure surveys. Unlike GDP, until recently, household income was not part of the performance assessment of Chinese government officials; therefore, the likelihood of falsification was low. Some studies have shown that China’s household income may have been significantly underestimated, mainly because high-income households are significantly underrepresented in income surveys.Footnote 16 However, as long as the degree of underestimation remains basically constant each year, the growth rate of household income should be fairly accurate.Footnote 17

Table 1.5 shows in the second column that between 1982 and 2012, China’s nominal disposable income per capita increased fiftyfold, with a compound annual growth rate of 14.01%.Footnote 18 Over the same period, the consumer price index increased by 5.56% per year. Therefore, after accounting for the rise in prices, the real growth rate should be around 8.45%, slightly lower than the growth rate of GDP per capita of 9.12% over the same period. Of course, China’s inflation rate may also have been underestimated, so that real income growth may not have been as high as 8.45%. To avoid using the official inflation rate, in the third column of the table, I converted all income figures in RMB to US dollars based on the official exchange rate. China’s disposable income per capita in 2012 was US$2,640.63, 13.63 times the 1982 figure of US$193.71. The compound annual growth rate should then have been 9.1% over this period. In other words, Chinese household income increased by 9.1% per year in US dollars. In comparison, the compound annual growth rate of disposable income of American households was only 3.14% over the same period, almost 6 percentage points lower than that of China. The inflation rate of the US dollar during this period was 2.93%, so the annual growth rate of income per capita in China measured by constant US dollars was 6.17%, while that of the United States was only 0.21%. As China’s RMB exchange rate was overvalued in 1982 and generally considered to be undervalued in 2012, the growth rate of disposable income in China calculated with the official exchange rate is actually an underestimation.

Table 1.5 Growth in disposable income per capita in China

RMBCalculated in US$ with the Official Exchange RateCalculated in US$ with the World Bank’s PPP–Adjusted Exchange Rate
Disposable Income Per Capita, 1982326194200
Disposable Income Per Capita, 201216,6692,6414,003
Growth Factor51.1113.6319.99
Nominal Compound Annual Growth Rate14.01%9.10%10.50%
Inflation Rate (CPI), RMB, or US$5.56%2.93%2.93%
Real Compound Annual Growth Rate8.45%6.17%7.57%

Note: The author made these calculations using data from the CEIC Global Database and the World Development Indicators. The official exchange rates in 1982 and 2012 published by the Chinese government were US$1 for RMB1.68 and RMB6.31, respectively, while the PPP–adjusted exchange rates published by the World Bank were US$1 for RMB1.63 and RMB4.16, respectively.

In the last column, I used the PPP–adjusted exchange rate published by the World Bank to convert RMB income to US dollars. As a result, China’s per capita income in 1982 was US$200 and reached US$4,003 in 2012, twenty times higher. In this calculation, the nominal compound annual growth rate would be 10.5%, and even adjusted for inflation, it would be as high as 7.57%.

Regardless of the data set we use, there is no doubt that China has indeed grown rapidly. The level and growth rate of China’s GDP in any given year may not be reliable, and its long-term average growth rate may not have reached 10 percent per year, but the fact remains that China has experienced the fastest growth rate in the world in the past three to four decades. So, unless otherwise noted, I use the official growth figures in the rest of this book with the understanding that the debate over the accuracy of the figures does not qualitatively affect my arguments.

How Unique Is China’s Growth Miracle?

Although China’s rapid economic growth in recent decades has been extraordinary, it should be noted that China was not the first country in history to sustain rapid growth for three decades or more. Using a compound annual growth rate in GDP per capita of 6 percent or more during any thirty-year period as a benchmark, seven other economies experienced similar growth miracles after WWII according to Angus Maddison’s data.Footnote 19 As shown in Table 1.6, these economies include Japan, South Korea, Taiwan, Singapore, and Hong Kong in East Asia, Botswana in Africa, and Saudi Arabia in the Middle East. The rapid growth of Japan and Saudi Arabia occurred between 1950 and 1980. The economic miracles of the Asian Tigers and Botswana took place ten years later, from the 1960s to the 1990s, while the Chinese economy took off twenty years after that. These eight economies have increased their GDP per capita fivefold or more in one generation.Footnote 20

Table 1.6 Growth miracles after WWII

EconomiesFastest Growing 30 YearsCompound Annual Growth Rate1950–19601960–19701970–19801980–19901990–20002000–2010
South Korea1965–19957.4%3.7%5.9%6.6%7.8%5.6%3.8%
Botswana1960–19907.3%1.5%4.9%10.5%6.5%2.1%2.0%
Taiwan1962–19927.1%4.0%6.5%7.6%6.6%5.3%3.4%
Mainland China1980–20107.0%4.0%1.6%3.1%5.8%6.2%8.9%
Japan1950–19806.7%7.6%9.3%3.3%3.4%0.9%0.7%
Singapore1964–19946.7%0.4%6.8%7.4%4.6%4.1%3.2%
Saudi Arabia1950–19806.1%5.2%7.4%5.7%–3.8%–0.1%1.4%
Hong Kong1958–19886.0%3.5%6.2%6.3%5.3%2.3%3.4%
Data source: Maddison Project Database 2013.

The growth miracles all happened in economies that were trying to catch up to countries at the technological frontier. In theory, an economy far from the technological frontier can potentially grow rapidly by adopting existing technologies instead of inventing new ones. This catch-up effect is also called “convergence” in economics. Table 1.7 shows that the United States, the world’s largest economy and one of the most advanced economies, experienced a GDP per capita growth rate of about 2 percent per year between 1950 and 2010. The average growth rate of Western European countries between 1950 and 1970 exceeded 4 percent, much faster than that of the United States. This was largely due to the effect of Europe’s postwar reconstruction and catching up to the United States. After 1970, the growth of developed countries in both Western Europe and the United States generally declined, and in the first decade of the new century, it fell below 1 percent. Table 1.7 also shows that the growth rate of developing countries in Latin America and Africa in general was not higher, but lower than that of developed countries. As a result, the gap between them did not decrease, but widened. This is in stark contrast to the miracle economies.

Table 1.7 “Non-miracle” growth in GDP per capita worldwide: 1950–2010

Country or RegionFastest Growing 30 YearsCompound Annual Growth Rate1950–19601960–19701970–19801980–19901990–20002000–2010
Western Europe1950–19803.6%4.2%4.0%2.6%1.9%2.0%0.8%
Latin America1950–19802.6%2.3%2.4%3.2%–0.7%1.5%1.4%
World1950–19802.6%2.8%3.0%1.9%1.3%1.6%2.6%
United States1958–19882.5%1.7%2.9%2.1%2.2%2.2%0.6%
Africa1950–19801.8%1.7%2.4%1.3%–0.6%0.6%3.0%
Data source: Maddison Project Database 2013.

In class, I often ask my Chinese students to guess the annual growth rate of GDP per capita in the United Kingdom during the Industrial Revolution. First, a student may give an estimate of 30%, to which I say no, not that fast. Others may then answer 20%, 15%, or 10%, but I tell them those are still too optimistic. They may then propose 8%, 5%, and so on, with no one guessing 2% or less. Table 1.8 shows the estimated historical growth rate of selected large economies between 1500 and 1940. Unless you are an expert, you will be surprised to find that the annual GDP per capita growth rate of the United Kingdom during the Industrial Revolution (around 1750–1850) was actually less than 0.5%. You may wonder how such “slow” growth can be called a “revolution.” But consider this: in the 250 years before the Industrial Revolution, GDP per capita in the United Kingdom grew at an annual rate of only 0.18% according to Maddison’s data, while its growth rate before 1500 was almost 0. In fact, before the Industrial Revolution, the growth rate of per capita income of every nation in the world was close to 0. In 1940, China’s GDP per capita was actually lower than in 1850. It is very possible that the living standard of Chinese people in 1940 was not much better than a thousand years earlier during the Song Dynasty.Footnote 21

Table 1.8 Economic growth from a historical perspective

CountryGDP Per Capita
(Measured in 1990 US Dollars)
Compound Annual Growth Rate of GDP Per Capita
1500175018001850190019401500–17501750–18001800–18501850–19001900–1940
United Kingdom1,0861,6952,0972,3304,4924,9880.18%0.43%0.21%1.32%0.26%
United States1,2961,8494,0917,0100.71%1.60%1.36%
Germany1,1461,0509861,4282,9855,403–0.03%–0.13%0.74%1.49%1.49%
Japan5986416811,1802,8740.14%0.12%1.11%2.25%
China600545562–0.19%0.08%
India5996860.34%
Brazil6836836781,2500.00%–0.01%1.54%
Data source: Maddison Project Database 2013.

Now imagine that China had started to grow at a rate of 1 percent per year since the Song Dynasty, 1,000 years ago. How much higher would China’s GDP be today? Without a calculator, you may guess ten, twenty, or even fifty times higher. However, the correct answer is 20,000 times! In other words, if, during the reign of Emperor Zhenzong in the Song Dynasty, China had a per capita income of US$300 measured in current currency, then with an average growth rate of 1 percent per year, it would have reached an incredible US$6 million today. Even with an annual growth rate of 0.4 percent, GDP per capita would have multiplied fifty times in 1,000 years. This is the power of compound growth.

Therefore, it is no exaggeration to say that the annual GDP per capita growth rate of 0.4 percent that the United Kingdom was able to achieve between 1750 and 1800 was truly the greatest leap forward in economic history. The term “revolution” is indeed well deserved. The total size of the world economy before the Industrial Revolution had certainly increased over time with population growth, but income per capita had never been able to sustain steady growth before this point. In economic jargon, the world was stuck in the “Malthusian trap,” named after the great classical economist Thomas Robert Malthus (1766–1834), who believed that population growth will always catch up with economic growth, thereby bringing income per capita to subsistence level.

Before WWII, the average annual growth rate of GDP per capita in Western countries never exceeded 2 percent. As a latecomer, Japan developed rapidly after the Meiji Restoration, with a growth rate of 2.25 percent between 1900 and 1940, surpassing that of Europe and the United States. This was due to the catch-up effect mentioned earlier. Japan benefited from “the advantage of backwardness,” meaning that a country with a relatively backward economy does not need to reinvent the wheel to develop, but can simply learn and absorb technologies from more advanced countries to achieve faster growth. The Industrial Revolution started relatively late in Germany and the United States compared with the United Kingdom, but their economic growth after 1800 exceeded that of the United Kingdom.

After WWII, economic growth in Western developed countries accelerated and average GDP per capita growth exceeded 2 percent for much of the fifty years before 2000. Third World countries also began to industrialize, but most did not grow faster than developed countries, indicating their inability to achieve the catch-up effect of latecomers. As shown, Japan and the four Asian Tigers sustained a growth rate of over 6 percent for more than thirty years. Outside East Asia, Saudi Arabia and Botswana were exceptions. Saudi Arabia’s economic growth was driven by its abundant oil reserves. Between 1980 and 2010, its real GDP per capita not only failed to grow but actually contracted. Similar to Saudi Arabia, Botswana’s economic development relied heavily on its abundant diamond reserves. When its GDP per capita was still below US$3,000 in 1990, the Botswanan economy lost momentum and slowed considerably. After 1990, its GDP per capita growth returned to a more modest level of around 2.5 percent per year.

Thus, only six economies in the Maddison Dataset, all from East Asia, maintained rapid growth for more than thirty years in the absence of abundant natural resources.Footnote 22 Apart from China, which had a late start in 1978, the other five economies (i.e., Japan and the four Asian Tigers) all joined the ranks of high-income economies and crossed the finish line in the race to catch up with developed economies. This leads to three questions. First, how did Japan become the first non-Western country to achieve successful industrialization? Second, why did the Asian Tigers manage to catch up with developed countries through sustained rapid growth after WWII? Third, why has China been the fastest growing economy in the past four decades? These three questions constitute what I call the “East Asian growth puzzle,” and the Chinese growth puzzle is only one part of it. The answer to the third question should help answer the first two.

Footnotes

1 I will comment on the accuracy of these official figures shortly. Unless otherwise noted, all growth figures in the book are real (i.e., adjusted for inflation) and not nominal.

2 OECD refers to the Organization for Economic Cooperation and Development, headquartered in Paris, France. It is an intergovernmental economic organization founded in 1961 and composed mainly of Western countries. It was later expanded to include some non-Western developed countries, such as Japan and South Korea, and some developing countries, such as Mexico and Turkey. It currently has thirty-six member countries.

3 In this book, unless stated otherwise, “China” refers to mainland China, excluding the Chinese territories of Hong Kong, Macau, and Taiwan.

5 The Economist (2010).

6 See, e.g., Young (Reference Young2003) and Chen, Chen, Hsieh, and Song (Reference Chen, Chen, Hsieh and Zheng2019).

7 See, e.g., Wu (Reference Wu2002), Young (Reference Young2003), Maddison (Reference Maddison2007), Holz (Reference Holz2014), and Lai and Zhu (Reference Lai and Zhu2020).

8 See Maddison and Wu (Reference Maddison and Harry2008). Similarly, economist Alwyn Young (Reference Young2003) found that due to the underestimation of inflation, the annual growth of China’s nonagricultural economy during the 1978–1998 period was overstated by 2.5 percentage points.

9 These two data projects are now hosted in the same institution, the University of Groningen Growth and Development Centre.

10 See, e.g., Maddison (Reference Maddison2007), p. 64.

11 See, e.g., Maddison and Wu (Reference Maddison and Harry2008) and Young (Reference Young2003).

12 See Holz (Reference Holz2014).

13 See Wang and Zhang (Reference Wang and Zhang2009).

16 I discuss this issue in more detail in the Appendix.

17 As China’s income inequality increased significantly between 1982 and 2012, the underestimation of income due to the underrepresentation of wealthy households may have been more severe in the 2000s than in the 1980s and the 1990s. As a result, real income growth may be even higher than the growth rate calculated in this section based on household survey data.

18 For rural households, I used the net income value to replace disposable income, which until recently was a concept reserved for urban households in China.

19 I used the Maddison Dataset here for the following reasons. First, it has the most comprehensive GDP data for the 1950–1960 period. Second, the data set does not overestimate China’s growth. Third, later I use his historical GDP data, which is probably Professor Maddison’s greatest contribution to economic research.

20 A World Bank report in 2008 identified thirteen economies that had grown at an average rate of 7 percent per year or more for twenty-five years or longer since 1950, including Botswana, Brazil, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan, and Thailand. The report used a different indicator (GDP, not GDP per capita) and different data sources (World Development Indicators and other World Bank sources). See the Commission on Growth and Development (2008).

21 According to the Maddison Historical Dataset, China’s per capita GDP around 1000 AD was US$466 (in 1990 US dollars), and it was US$562 in 1940. These numbers are of course subject to debate and should not be taken too literally.

22 Macau, another Chinese territory, would have made the list, but it was not included in the Maddison Dataset.

Figure 0

Table 1.1 Economic growth around the world: 1982–2012

Figure 1

Table 1.2 GDP per capita growth rates in the world: 1980–2010 by decade

Data source: World Development Indicators.
Figure 2

Table 1.3 Growth rates based on the Maddison Project and the Penn World Table: Compound annual growth rates of GDP per capita over the 1980–2010 period (%)

Figure 3

Table 1.4 GDP per capita and Engel coefficients

Figure 4

Table 1.5 Growth in disposable income per capita in China

Figure 5

Table 1.6 Growth miracles after WWII

Data source: Maddison Project Database 2013.
Figure 6

Table 1.7 “Non-miracle” growth in GDP per capita worldwide: 1950–2010

Data source: Maddison Project Database 2013.
Figure 7

Table 1.8 Economic growth from a historical perspective

Data source: Maddison Project Database 2013.
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