Anatomy of a ‘Miracle’: Assessing the Reform Period in China
We offer a macroeconomic assessment of China’s Reform Period, highlighting a number of rather neglected channels underlining the Chinese ‘miracle’ growth and assess the optimality of its savings rate. We begin by estimating the key parameter of the supply side of the post-Reform economy. This reveals the relatively high (above unity) value of the elasticity of substitution and the time-varying growth pattern of the economy since the Reform period. We then show how in addition to factor accumulation and technical progress, the elasticity of substitution can itself be a source of growth. We then use our framework to help rationalize and justify China’s high and rising savings ratio over the previous decades.