Analytical Analysis on Production and Cost.pdf

Topics: Economics, Economic growth, Economy Pages: 40 (10417 words) Published: April 19, 2014
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AN EMPIRICAL ANALYSIS OF THE LEWIS-RANIS-FEI
THEORY OF DUALISTIC ECONOMIC
DEVELOPMENT FOR CHINA∗
MARCO G. ERCOLANI
Department of Economics, University of Birmingham, Edgbaston, B15 2TT, United Kingdom. Tel. 00 44 (0) 121 414 7701. E-mail M.G.Ercolani@bham.ac.uk ZHENG WEI
University of Nottingham Ningbo China, 199 Taikang East Road, Ningbo, P.R. China, 315100. Tel: 0044 (0) 574 8818 0330, E-mail: Zheng.Wei@nottingham.edu.cn

January 2010

Abstract
We employ the Lewis-Ranis-Fei theory of dualistic economic development as a framework to investigate China’s rapid growth over 1965-2002. We find that China’s economic growth is mainly attributable to the development of the non-agricultural (industrial and service) sector, driven by rapid labour migration and capital accumulation. Our estimates of the sectoral marginal productivity of labour indicate that China’s 1978 Economic Reform coincided with moving from phase one to phase two growth, as defined in the Lewis-Ranis-Fei model. This implies that phase three growth could be achieved by the commercialisation of the Chinese agricultural labour market. (95 words)

Keywords: agricultural, development, dualistic growth, labour migration, subsistence. JEL classification: O14, O15, O18, O41, O47, O53.



The first draft of this paper has been presented in the CES (Chinese Economist Society) 2007 Annual Conference in Changsha, Hunan province, P.R. China. We are grateful to the constructive comments of conference participants.

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Table of Contents

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Introduction ............................................................................................................... 3 Literature survey ........................................................................................................ 6 2.1 The Lewis-Ranis-Fei model ............................................................................ 6 2.2 Relevant empirical studies ............................................................................... 7 The Chinese experience ........................................................................................... 10 3.1 China’s dualistic economic development ...................................................... 10 3.2 China’s sectoral labour reallocation .............................................................. 11 Model specification ................................................................................................. 14 4.1 The production functions and growth decompositions ................................. 14 4.2 The labour reallocation effect ........................................................................ 15 The data ................................................................................................................... 17 Estimates of the production functions ..................................................................... 19 6.1 Stationarity tests ............................................................................................ 19 6.2 Results estimates of the production functions ............................................... 20 Empirical analysis on sectoral growth ..................................................................... 25 7.1 Sources of China’s dual-sector economic growth ......................................... 25 7.2 The contribution of sectoral labour reallocation............................................ 26 7.3 Phases in China’s economic development and the turning points ................. 29 Conclusion and policy recommendations ................................................................ 32

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1 Introduction
Lewis (1954) proposed a seminal theory of dualistic economic development for over-populated and under-developed economies with vast amounts of surplus agricultural labour1 for which he was later to be awarded the 1979 Nobel Prize in Economics. Economic growth in such an economy can be achieved by rapid capital...


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