MSc BUSINESS ECONOMIC AND FINANCE
Title of Project
The determinant of economic growth in emerging markets: A case study of China.
Student ID: 10034757
Project Supervisor: Dr. Helen Solomon.
China has enjoyed a very rapid economic growth over the past decades. The impressive growth was driven by several factors. This study aims to determine those factors which contributed to unprecedented economic growth of China and show the relationship with the economic growth by an empirically investigation.
The Ordinary Least Squares (OLS) method is applied in order to estimate a growth model using a time series data from 1984 to 2009. The results shows that trade openness, government size and inflation have a significant effect on economic growth. On the other hand, foreign direct investments, the level of human capital and return on investment have minor impact on economic growth in China. The relationship is established though the vector error correction model (VECM), the finding is that trade openness, government size and inflation had a positive impact on gross domestic product of China in the long-run.
Word account: 13.112 words.
Allow me to pay tribute to my supervisor, Dr. Solomon for kindly supervising this study and giving her time and her knowledge to the success of this project.
I take this opportunity to thanks my elder brother Arezki TOUAT who was a model of success and constant source of motivation; I’m here to express my sincere gratitude and I wish him all the best for his wedding day.
I dedicated this work to my parents Mouloud and Saliha TOUAT, who have contributed in an extraordinary way to my studies. To my younger sister Louiza TOUAT who is very special for me.
Table of Contents
Organization of the study
OVERVIEW OF THE CHINESE ECONOMY
Geopolitical characteristics of China
Economic reforms in China
REVIEW OF LITERATURE
Basic Economic Growth Model
The Harrod-Domar model
Exogenous growth Solow model
The augmented Solow-MRW
The growth accounting model
The determinants of growth
Foreign direct investment
Return on investment (Portfolio investment)
DATA AND METHODOLOGY
Presentation of the data and statistical analysis
Description of the variable
GDP per Capita
Foreign Direct Investment Net Inflows (% of GDP)
School enrolment, tertiary
General government final consumption expenditure
Portfolio investment, bonds
Electric power consumption
Estimation of the general model
The hypothesized relationships between GDP and its determinant
MODEL ESTIMATION AND FINDING
Testing For Stationary using the Augmented Dickey Fuller Test
Results of the stationarity test.
Estimation of a Short-Run Growth Model for China
Results of Robustness Tests
Testing for autocorrelation:
Testing for hetereoskedasticity:
Testing for non-linear functional form
Estimating a long-run growth model for China
Testing for Co-integration: Engle-Granger Approach
Results using Engle and Granger Approach
Result of Johansen co-integration test.
Vector correction model:
LIST OF TABLES AND FIGURES
Table 1: Literature review on foreign direct investment.
Table 2: Literature review on inflation.
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